# EUR-Lex - 52013DC0700 - EN

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# 52013DC0700

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2013-2014 /* COM/2013/0700 final */**

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Copenhagen Twenty Years On

Fundamentals First - Rule of Law, Democracy and the Economy

I. The enlargement agenda

Twenty years ago, the
Western Balkans were torn by conflict. At the same time, the European Union
agreed the conditions, known as the Copenhagen criteria, for entry of future
Member States into the EU. The Copenhagen criteria reflect the values on which
the EU is founded: democracy, the rule of law, respect for fundamental rights,
as well as the importance of a functioning market economy. This paved the way
for the historic transformation and accession of the countries of Central and
Eastern Europe.

Ten years later, at the
Thessaloniki Summit in 2003, the EU granted all countries of the Western
Balkans a clear perspective of EU membership, subject to fulfilment of the
necessary conditions, in particular the Copenhagen criteria and the conditions
of the Stabilisation and Association Process (SAP).

Croatia has met these
conditions. Following ratification of the Accession Treaty by all Member States,
the European Union welcomed Croatia as the 28th Member State on 1 July 2013.
Croatia is the first country to complete the Stabilisation and Association
Process. Croatia’s accession is an example of the transformative power and
stabilising effect of the enlargement process and the EU’s soft power.

The historic agreement
reached by Serbia and Kosovo* in April is
further proof of the power of the EU perspective and its role in healing
history’s deep scars. It also, crucially, reflects the courage of the political
leadership in both countries. In June, the European Council decided to open
accession negotiations with Serbia and the Council authorised the opening of
negotiations for a Stabilisation and Association Agreement between the EU and
Kosovo.

It has been a
significant year for the other enlargement countries:

In June 2013, Montenegro
adopted comprehensive actions plans for the chapters on judiciary and
fundamental rights and on justice, freedom and security, in line with the new
approach to tackle these chapters early in the accession process. In Albania,
cross-party support for key reforms, orderly conduct of parliamentary elections
and further steps in the fight against corruption and organised crime means
candidate status is now within reach. The former Yugoslav Republic of
Macedonia has emerged from its political crisis earlier in the year, but
concerns remain, notably as regards freedom of expression and media. Steps have
been taken to improve good neighbourly relations. More broadly, a breakthrough
in the UN-facilitated name talks is now vital. In Bosnia and Herzegovina,
a lack of political will to implement reforms and the failure to implement the
Sejdic-Finci ruling is hampering the country’s EU progress and economic
prospects.

In Turkey, there
has been progress in judicial and other reforms and the much anticipated
democratisation package was presented in September. Peace talks with the PKK
were pursued with a view to ending terrorism and violence in the southeast of
the country, laying the ground for a solution to the Kurdish issue. However,
the handling of demonstrations in response to the proposed development of Gezi
Park in Istanbul raised serious concerns and underlined the need for the EU to
remain the anchor for reform.

As regards Iceland,
the new government has put accession negotiations with the EU on hold and
declared that negotiations will not be continued without a referendum.

The accession process
today is more rigorous and comprehensive than in the past. This reflects
the evolution of EU policies as well as lessons learned from
previous enlargements. The process is built on strict but
fair conditionality with progress towards membership dependent on the steps
taken by each country to meet the established criteria. A key lesson
from the past is the importance of addressing the fundamentals first.

The rule of law
is now at the heart of the enlargement process. The new approach, endorsed by
the Council in December 2011, means that countries need to tackle issues such
as judicial reform and the fight against organised crime and corruption early
in accession negotiations. This maximises the time countries have to develop a
solid track record of reform implementation, thereby ensuring that reforms are
deeply rooted and irreversible. This new approach is a key element of the
negotiating framework for Montenegro and will shape the Commission’s work with
the other enlargement countries.

The global economic
crisis of the past five years has underlined the need, for all countries, to
fundamentally review and strengthen their economic governance. This
applies in particular to the countries of the Western Balkans, none of which is
a functioning market economy. All are affected by high unemployment,
particularly among the young. It is essential that these countries intensify
reforms to return to sustainable growth and address the challenges necessary to
meet the economic criteria and improve competitiveness. This Communication sets
out proposals to support this aim, including the introduction of national economic
reform strategies and of action plans for public financial management.

Events in a number of
enlargement countries have underlined the importance of strengthening
democratic institutions and ensuring inclusive democratic processes that
support these institutions and reinforce core democratic principles and common
EU values. A stronger role for civil society is key, as are cross-party
platforms for EU integration and further progress with electoral, parliamentary
and public administration reforms.

The European Union is
founded on common values and principles, including respect for fundamental
rights. All the countries of the Western Balkans and Turkey need to
undertake further reforms to ensure that the principles of freedom of
expression and the protection of the rights of persons belonging to minorities,
including Roma are respected in practice, not just enshrined in law. More
robust measures are needed to protect other vulnerable groups from
discrimination, in particular on grounds of sexual orientation.

Good neighbourly
relations
and regional cooperation are essential elements of the Stabilisation and
Association process. Developments in Serbia and Kosovo in particular
have shown that countries can make progress towards overcoming the legacy of
recent conflict, in line with the very principle on which the European Union
was founded. Regional cooperation needs to be further
strengthened, to be inclusive and regionally-owned. The Commission fully
supports the work of the South-East Europe Cooperation Process (SEECP) and
Regional Cooperation Council, including the Regional 2020 strategy. There needs to
be a renewed effort to overcome bilateral disputes among enlargement countries
and with Member States. Bilateral issues need to be addressed by the parties
concerned as early as possible and should not hold up the accession process.

2014 sees the launch of
the second Instrument for Pre-Accession Assistance. Through
IPA II, the EU will continue to provide substantial support to the
enlargement countries in their preparation for accession, with a comparable
level of funds for the period 2014-2020 (€11.7 billion in current prices) as in the
current financial framework. IPA II will also support regional and cross-border
cooperation. IPA II will focus on areas of shared interest, in particular to
support reforms and their sustained implementation in the rule of law area, to
strengthen democratic institutions and good governance as well as
socio-economic development.

The launch of
IPA II is also an opportunity to ensure an even closer link between the
enlargement strategy and the priorities for assistance. IPA II introduces
some important innovations, notably the focus on defining long-term policies
and strategies in a limited number of priority sectors, which will be aligned
with the needs and capacities of each country. Clear targets and realistic
indicators will be set and linked to multi-annual sector assistance. If
countries meet the necessary standards of public financial management, they
will be able to benefit from budget support – a further incentive for reform.
Incentives will be available to countries that advance on their reform path. In
case of underperformance, funds will be reallocated. The management of IPA
programmes will be further streamlined, mainly through fewer and larger
projects.

All enlargement
countries have a clear European perspective. Progress towards membership
depends on the steps taken by each country to meet the established criteria,
based on the principle of own merits. This is crucial for the credibility of
enlargement policy and for providing incentives to the countries to pursue far-reaching
reforms. At the same time, it is essential for Member States,
together with the EU institutions, to lead an informed debate on the political,
economic and social impact of the enlargement policy. They have a key role in
providing citizens with the facts on enlargement policy and, in so doing, to
inform them of the benefits, including its major contribution to peace,
security and prosperity, and to address any concerns they may have.

II. 
Key Challenges

In this Communication,
the Commission underlines a number of key challenges facing the Western
Balkans and Turkey: economic governance and competitiveness; the rule of
law; the functioning of institutions guaranteeing democracy; fundamental
rights; and, in the case of the Western Balkans, overcoming the legacy of the
past. These challenges are central to the Copenhagen criteria and the
conditionalities of the Stabilisation and Association process. Measures to
address these challenges are also mutually reinforcing. For example, promoting
the rule of law and guaranteeing fundamental rights increase legal certainty
and together with deeper regional integration, contribute significantly to
supporting economic development and competitiveness.

a) 
Economic governance and competitiveness

In the last three years,
the EU has significantly strengthened its economic governance. In the European
semester, Member States coordinate fiscal and structural policies before the
respective parliaments adopt their national budgets. The tools of the economic
dialogue with enlargement countries are gradually being adapted to the new
challenges and the coordination mechanisms in the EU. The countries have been
already asked to put more emphasis on the sustainability of their external
position and on the main structural obstacles to growth. It is important now to
more fully reflect the main EU instruments in the economic dialogue given how
economically and financially integrated the enlargement countries are with the
EU.

The EU is the
destination for approximately 60% of exports from the Western Balkans. The EU
is also by far the biggest provider of foreign direct investment (FDI). With
the exception of Turkey, EU banks dominate the financial sector. Access to the
EU’s single market for goods and services provides an important channel for
growth. Recovery in the EU will also have a positive impact on the Western
Balkans in particular. The Commission’s most recent forecast is that the
Western Balkans should grow by 2% in 2013. The forecast for Turkey is 3.2%, indicating
a return to higher growth rates after a relative slowdown in 2012.

Modest recovery in the
Western Balkans is not a guarantee for sustainable growth and convergence.
There remain significant challenges in all enlargement countries in terms of
economic reform, competitiveness and job creation:

· 
While
Turkey is a functioning market economy, no Western Balkan enlargement country
enjoys this status.

· 
Public
financial management systems need to be significantly strengthened to reduce
the risk of fraud and corruption.

· 
The
rule of law needs to be significantly improved to provide greater legal
certainty for economic operators and to increase investor confidence.

· 
Structural
reforms need to be prioritised and competitiveness enhanced in order to support
fiscal consolidation, tackle high external imbalances as well as high
unemployment in all countries, averaging over 20% in the Western Balkans. There
are considerable regional differences within the countries, with higher levels
of poverty in rural areas.

A new approach is
proposed to help the enlargement countries tackle the economic fundamentals
first and meet the economic criteria. The countries will be
invited to enhance economic policy and its governance through the co-ordinated
preparation of a national economic reform strategy comprising two elements – a macroeconomic
and fiscal programme and a structural reforms and competitiveness programme.
These will be dealt with both in the bilateral and multilateral dialogue with
the countries:

· 
The
macroeconomic and fiscal programme will continue to be addressed through the
existing instruments, namely Pre-Accession Economic Programmes for candidate
countries and Economic and Fiscal Programmes for potential candidates. To
strengthen surveillance, the joint ECOFIN Council with candidate countries will
be invited to provide more targeted policy guidance through country-specific
recommendations and to undertake an annual review and stock-tacking of policy
implementation.

· 
As
a new element, the countries will be asked to develop structural and
competitiveness reform programmes. These programmes will be prepared in
parallel with
the fiscal programmes, but will be then reviewed in the context of the relevant
Stabilisation and Association Agreement bodies, most notably in the areas of
industry, competition, internal market, research, education, transport, energy
and environment. Furthermore, the Commission will use the autumn progress
reports to give clear guidance on the reforms needed for achieving further
progress in meeting the economic criteria.

The Commission will also
engage in dialogue on public financial management with the enlargement countries,
which will, inter alia, support progress towards meeting the economic criteria.
Countries will need to draw up action plans in this field that will be
monitored by the Commission. Progress towards effective public financial
management will also open up the possibility of sector budget support, as
provided for under IPA II.

The Commission will take
forward this approach in close cooperation with relevant international
financial institutions and will provide comprehensive regional technical
assistance to this effect. The Commission recommendations on the economic
criteria will offer guidance as to the scope of this technical assistance.

Other
measures to boost competitiveness, investments, growth and jobs

The Commission’s support
for sustainable economic development in the Western Balkans goes beyond
macro-economic stabilisation and the achievement of the functioning market
economy status. Since the beginning of the crisis, the Commission has been
insisting that more needs to be done to address the difficult socio-economic
situation, in particular high unemployment. The Commission has also highlighted
the need to support investment in infrastructure in the Western Balkans. Cross-border
transport, energy and communications networks are underdeveloped. In view of
the size of the Western Balkan economies, closer integration is
key.
Regional economic cooperation has been recognised as an opportunity for growth
and a basis for political cooperation and good neighbourly relations. The
planned liberalisation of services in the Central European Free Trade Area
(CEFTA) would further support this aim. Developing human and
physical capital in rural areas and further adoption of EU standards in the
agri-food sector will contribute to the competitiveness of the regional
agriculture sector.

The Commission has already
started a new dialogue on employment and social reform programmes with Turkey
and Serbia. Dialogues with the former Yugoslav Republic of Macedonia and
Montenegro will follow. The socio-economic situation in the potential
candidates is more challenging than in the candidate countries and extra
support will be needed to build administrative capacity to facilitate
participation in the new process. The potential candidates will be gradually
invited to the new dialogue. Comprehensive technical assistance will be
programmed in 2014, with emphasis on the potential candidates. With a view to
reducing the skills gap and improving education systems, the Commission will
continue developing the Western Balkans platform on education and training.

Under the auspices of
the Regional Cooperation Council (RCC), regional groups established under the
Thessaloniki agenda have started to address the priorities of Europe 2020. A
Regional 2020 strategy is in the making. More needs to be done to increase
awareness and capacity of the currently dispersed regional groups so they can
engage in regular peer reviews and issue recommendations. The RCC will need to
develop a public monitoring mechanism. Findings from the groups and the
monitoring mechanism will be followed up by the Commission in its economic
dialogue and in the IPA programming process.

Reforms leading to
fulfilment of the economic criteria will also be supported by the Western
Balkans Investment Framework (WBIF). The WBIF plays an increasingly important
role helping prepare and support those investments most needed for boosting
growth and jobs. Under the WBIF, the Commission, bilateral donors and international
financial institutions are supporting €4 billion worth of investments
per year in transport, energy, the environment, climate change, the social
sector and private sector / SME development, where the Commission is
co-financing a Western Balkan SME platform aimed at improving access to finance
for SMEs through guarantees and venture capital.

Improving transport and
energy interconnection between the EU and enlargement countries will be a key
priority for promoting sustainable economic growth, jobs, trade and cultural
exchange. The Commission underlines the importance of further development of
Trans-European energy infrastructure and co-operation with the Energy
Community. The forthcoming Transport Community Treaty will promote integration
of land transport markets and infrastructure whilst helping the Western Balkan
countries implement EU land transport standards. The Commission has reviewed
the EU’s Trans-European Networks in the field of transport (TEN-T) and energy
(TEN-E) with a view to improving connections with the countries covered by the enlargement
and neighbourhood policies. In this sense, the Commission has adopted a list of
Projects of Common Interest (PCIs) for the development of trans-European energy
infrastructure. A list of Projects of Energy Community interest (PECIs) should
be adopted by the upcoming Energy Community Ministerial Council.

Cooperation with Turkey
will be enhanced, not least in view of its strategic location and potential as
an energy hub. In 2013, Turkey ratified the Trans Anatolian Pipeline Agreement aimed
at connecting with the Trans Adriatic Pipeline, bringing natural gas to the EU
from the Caspian via Turkey. In this context, strengthening of the EU-Turkey
energy cooperation as well as relevant progress in the accession negotiations
would facilitate further progress towards the interconnection and integration
of the energy markets of the EU and Turkey. The Commission looks forward to an
evaluation by the World Bank reviewing the EU-Turkey Customs Union. This
evaluation, contracted by the European Commission, will make recommendations on
the improvement of its functionality and the possible widening of its scope.

To support
work on the above challenges, the Commission will:

- Invite the
enlargement countries to prepare a national economic reform strategy comprising
two elements – the existing macroeconomic and fiscal programme and a new
structural reforms and competitiveness programme. The process will result in
country specific recommendations and in clear guidance on actions needed for
achieving further progress towards becoming a functioning market economy and
for improving competitiveness.

- Launch a
dialogue with the countries on necessary requirements to meet public financial
management standards, preparing the ground for possible IPA budget support.

- Provide comprehensive
technical assistance in close cooperation with other international
organisations.

In the period 2007-2013,
up to €190 million pre-accession assistance have been provided to strengthen
institutional capacities of governments in areas such as the management of
public funds, economic and fiscal policy and statistics, as well as
institutional capacities of national banks.

Through IPA II, the
Commission will
continue to support reforms leading to fulfilment of the economic criteria and
socio-economic development, including through the Western Balkans Investment
Framework (WBIF), prioritising improvement in transport and energy
interconnection between the EU and enlargement countries, and provide technical
assistance to support economic governance, the dialogue on employment
and social issues, the objectives of the RCC on a regional 2020 strategy, and
agriculture and rural development.

b)   The rule of law

The rule of law is a
fundamental value on which the EU is founded. Safeguarding values,
such as the rule of law, is what the European Union was made to do, from its
inception to the latest chapters in enlargement. The rule of law remains
a priority for the EU and is at the heart of the accession process, a
key pillar of the Copenhagen political criteria. Countries aspiring to join the
Union need to establish and promote from an early stage the proper functioning
of the core institutions necessary for securing the rule of law. Rule of law
supports the business environment, providing legal certainty for economic
operators and stimulating investment, jobs and growth. Fighting organised
crime and corruption is fundamental to countering the criminal infiltration of
the political, legal and economic systems. In most
enlargement countries there is a need for inclusive, transparent and ambitious
judicial reforms with the aim of ensuring independent, impartial, efficient and
accountable judicial systems. Particular attention is needed to the
appointment, evaluation and disciplinary procedures for judges. There is also a
need to put in place stronger frameworks for tackling corruption and organised
crime, which remain a serious concern in many enlargement countries. Efforts
are needed to ensure a sustained track record of substantial results in this
field based on efficient, effective and unbiased investigation, prosecution and
court rulings in cases at all levels, including high level corruption.

The visa
liberalisation process has incentivised the countries of the Western
Balkans to take substantial steps to reform those aspects most closely related
to the visa liberalisation process. Those reforms have strengthened internal
governance. The countries need to step-up efforts to consolidate those reforms
and implement measures to prevent abuse of the liberalised visa regime as
outlined and recommended by the Commission in its post-visa liberalisation
monitoring reports. The Commission will present the fourth such report by the
end of 2013. Migration and border management issues will continue to be addressed in
the appropriate fora, such as in the SAA framework, and including in chapter 24
on justice, freedom and security.

A new approach to the
accession negotiations on the judiciary and fundamental rights and justice,
freedom and security is being implemented. Building on lessons learned, the new
approach introduces the need for solid track records of reform implementation
to be developed throughout the process. Tackling these areas
early in the negotiations gives maximum time to enlargement countries to ensure
that reforms are deeply rooted and irreversible. The new approach is now
being applied in the negotiations with Montenegro, which has prepared
comprehensive action plans as a basis for opening negotiations on these
chapters. Following the invitation of the European Council in June 2013, the
new approach is being fully integrated into the negotiating framework for Serbia
and the screening of chapters 23 and 24 is under way.

The rule of law is also
a key theme in the EU’s relations with other enlargement countries. The
Commission’s High Level Accession Dialogue with the former Yugoslav Republic
of Macedonia continues to address rule of law issues. A number of the key
priorities of the Commission’s 2010 Opinion setting out the conditions for the
opening of accession negotiations with Albania concern the rule of law.
The Commission supports judicial reform through its Structured Dialogue on
Justice with Bosnia and Herzegovina and also holds a Structured Dialogue
on the Rule of Law with Kosovo, focusing on the fight against organised
crime and corruption and reform of the judiciary. The rule of law is also a
priority under the positive agenda with Turkey.

To support
work on the above challenges, the Commission will:

- Implement
the new approach to chapters judiciary and fundamental rights and justice,
freedom and security with Montenegro and Serbia and continue to prioritise
the rule of law through targeted dialogues with the other enlargement
countries.

- Ensure
coordination with the relevant European agencies (in particular Europol,
Eurojust and Frontex) and encourage strengthened cooperation between these
agencies and enlargement countries, including
the conclusion of operational agreements with Europol.

- Strengthen
support to rule of law-related reforms through IPA II at both national and
regional levels, to embed reforms in these key areas and to ensure an effective
exchange of best practice in establishing track records in tackling organised
crime and corruption.

In the period 2007-2013,
over €800 million pre-accession assistance has been provided to improve the
justice sector, independence of judiciary, fight against corruption and
organised crime, as well as border management and security. Through
IPA II, sector strategies will be developed with a particular focus on
developing independent, efficient and professional judiciaries and supporting
the development of a strong framework at national and regional level and
track record of implementation in the fight against organised crime and
corruption. This includes prevention measures and providing law enforcement
bodies with effective legal and investigative tools, in particular the capacity
to conduct financial investigations.

c)   The functioning of institutions guaranteeing
democracy

The Copenhagen political
criteria require candidate countries to achieve stability of institutions
guaranteeing democracy. The proper functioning of core institutions is vital,
whether the national parliament, the government or the public administration.
The transparency, accountability and effectiveness of institutions and public
administrations, including a greater focus on the needs of citizens and
business, needs to be prioritised in most enlargement countries. More needs to
be done to strengthen participatory democracy and establish national platforms
for EU-related reforms that build a consensus across parties and wider society
to support the major reforms required. The countries also need to find an
appropriate balance between central, regional and local government that
best supports implementation of reforms and the delivery of services to
citizens. The role of regional and local authorities in the EU alignment
process and eventual application of EU rules is also key.

Democratic institutions
remain fragile in a number of enlargement countries. A culture of consensus
building is lacking, with the role of national parliaments
underdeveloped. Democracy is about more than the conduct of free and fair
elections. It is about strong, accountable institutions and participatory
processes, centred around national parliaments. Parliamentary scrutiny is often
undermined by excessive use of urgent procedures for legislation, weak
parliamentary committee systems and procedures and insufficient stakeholder
consultation, with minimal input from experts.

Elections are all too
often seen as an opportunity to gain political control of state institutions
well beyond the normal legitimate hand-over of political power associated with
a change of administration. In many cases, even relatively junior positions in
the public administration are effectively politicised. This undermines both the
capacity and accountability of administrations. Public administration reform
is vital, including professionalization and de-politicisation of the
civil service. Embedding meritocratic principles, tackling corruption and
ensuring adequate administrative procedures, including with respect to human
resources, are of fundamental importance.

Civil society and
citizens
and particularly young people are too often marginalised from day to day
politics. Dialogue between decision makers and stakeholders needs to be further
developed. An empowered civil society is a crucial component of any democratic
system. It enhances political accountability and social cohesion, deepening understanding
and inclusiveness of accession-related reforms, as well as supporting
reconciliation in societies divided by conflict. In some
cases, a more supportive and enabling environment needs to be developed that
improves the conditions for policy dialogue and non-partisan input to the
decision making process, supported by good quality statistics provided by
independent national statistical bodies. The independence and effectiveness of
key bodies such as the ombudsman and state audit institutions need
to be ensured and their recommendations appropriately followed-up.

To support
work on the above challenges, the Commission will:

- Work more
intensively with international organisations such as the Council of Europe,
OSCE/ODIHR and OECD (SIGMA) to support electoral and parliamentary reform;
continue to promote inter-parliamentary cooperation between national
parliaments of the region and those of the EU Member States and the European
Parliament.

- Increase
the priority attached to public administration reform in the accession process,
with particular emphasis on transparency, de-politicisation and meritocratic
recruitment processes.

–Increase
focus on civil society, including capacity building and encouraging the
creation of an enabling environment for its development and greater involvement
of stakeholders in reforms, including through greater transparency of
government action and spending;

- Promote
broad-based participation in the accession process, building on the positive
example of Montenegro, and encourage maximum transparency in handling of
relevant documents.

In the period 2007-2013,
over €30 million pre-accession assistance has been provided to enhance amongst
others the capacity of national parliamentary assemblies, ombudsmen and
national audit institutions. In the same period, civil society organisations
have been supported by almost €190 million from IPA, as well as by over €35
million from the European Instrument for Democracy and Human Rights (EIDHR). Through
IPA II, the Commission will support the strengthening of democratic
institutions, good governance, including ombudsmen, and public administration
reform, including twinning projects in the above areas. The Commission will
also explore options to empower and further support the next generation of
policy makers, public officials and leaders, including through more targeted
visits programmes and a possible EU scholarships scheme. The Commission will
also continue to support capacity building of civil society, including through
the Civil Society Facility, and provide an enhanced role to civil society in
the strategic programming of IPA II.

d)   Fundamental rights

Civil, political, social
and economic rights, as well as the rights of persons belonging to minorities
are significant issues in most enlargement countries. Fundamental rights are
broadly guaranteed in law in the enlargement countries but in many cases not
implemented in practice. More needs to be done to improve the position of women
and ensure gender equality, to implement children’s rights and support people
with disabilities.

In a number of enlargement countries,
freedom of expression remains a serious concern. Ethnic minorities, notably the
Roma, face many difficulties, despite the existence of legal frameworks
supporting their rights. It is important to consolidate a coherent framework on
combating certain forms and expressions of racism and xenophobia in areas such
as audio-visual media, sports, politics, education and the internet.
Discrimination on the basis of sexual orientation is also widespread. These
vulnerable groups also face societal hostility which can descend into hate
speech, violence and intimidation.

In this year’s Communication,
the Commission lays particular emphasis on freedom of expression, the situation
of the Roma, and the position of LGBTI persons. The Commission is
working closely on these fundamental rights issues with the relevant
international and regional organisations, in particular the Council of Europe
and the OSCE. The Commission proposes that candidate countries participate as
observers in the EU’s Fundamental Rights Agency, in view of supporting their
efforts to ensure full respect of fundamental rights.

- 
Freedom of expression

The
Commission has been prioritising freedom of expression and the media in the EU
accession process and in our financial and technical support. In June 2013, the
Commission together with the European Parliament held a Speak-Up!2
conference which brought together hundreds of key stakeholders from the
media, civil society and national authorities.

The
enlargement countries are characterised in most cases by pluralist media
landscapes. However, the Speak-Up!2 conference confirmed that a number of
important challenges need to be urgently addressed. Cases of violence and
intimidation against journalists are a continuing problem, leading to
self-censorship. Authorities need to step up their efforts in investigating new
and past cases and ensure dissuasive sanctions are applied against
perpetrators. By decriminalising defamation, a major step towards
protecting free and critical journalism was taken in south east Europe. However,
prosecutions of journalists continue. There is a need to develop and train the
judiciary to prevent abuse of state power.

Political
interference with media freedom remains a serious concern. More efforts
are needed to ensure the political and financial independence of public
service broadcasters in the Western Balkans. This is best ensured by having
sustainable funding and transparent rules for appointing board members and
strong national commitment to the needed reforms. In most enlargement
countries, regulatory agencies are not performing satisfactorily.
Moreover, there is no functional media self-regulation in place and
media outlets need to make more of an effort to improve their internal
governance. There is also a need to tackle informal economic pressure on the
media, including through transparency of media ownership, preventing
its excessive concentration and transparent rules on procurement of government
advertising. Labour laws at media outlets also need to be properly implemented

To support work on these challenges, the Commission will:

- Promote
freedom of expression and media and stress its importance for EU membership
through our regular political dialogues with the enlargement countries.

- Ensure
freedom of expression and media is consistently addressed as a priority through
chapter 23 judiciary and fundamental rights and chapter 10 information society
and media.

- Grant an
award for excellence in investigative journalism starting in 2014.

In the period 2007-2013,
over €27 million pre-accession assistance has been provided to help countries
address the challenges related to freedom of expression. Through IPA II,
the Commission will develop a long term vision of EU financial assistance on
freedom of expression, also working together with key partners (e.g. Council of
Europe, OSCE, OECD).

- 
Roma

There are about 10 to 12
million Roma in Europe, of which about 4 million are in Turkey and 1 million in
the Western Balkans. Across Europe, the situation of most Roma communities is
a matter of serious concern. Roma are very often the victims of racism,
discrimination and social exclusion and live in deep poverty, lacking
sufficient access to healthcare, education and training, housing and
employment. In light of the difficult conditions they face, significant numbers
leave the region and seek asylum in a number of EU countries. Most of these
claims are ultimately unsuccessful. This situation is not sustainable.

Since 2011, a framework
for National Roma Integration Strategies is in place at EU level. With a focus
on reducing poverty, social exclusion and discrimination of Roma, the goals and
principles of this framework are equally relevant for enlargement countries,
where much
more needs to be done to facilitate the social and economic
inclusion of Roma and to develop and ensure adequate implementation, follow-up
and monitoring of national Roma strategies. Roma inclusion has to
become a national priority, not just in strategy papers but in actual
engagement on the ground, with measures to increase access to education,
to foster employment and increase health and housing
conditions, in particular to ensure access to public utilities such as water
and electricity. The issue of civil documentation and registration of
Roma needs to be addressed.

Roma
inclusion remains a key objective and will be an increasing political challenge
if stronger action is not taken. It requires a coordinated approach based on
strong political will at all levels, particularly from municipal
authorities and national governments in the countries concerned, as well as
a change of mind-set among majority populations. Roma leaders also need
to play their part, by promoting higher rate of civil registration, by ensuring
participation in compulsory education and by limiting the flow of asylum
seekers. Local authorities must be willing to enforce attendance and address
resistance from majority populations to joint education, including by linking
welfare payments to school attendance.

The Commission is
working closely with each of the enlargement countries to review progress in
implementing key commitments undertaken to promote further inclusion of the
Roma community. Coherence of support to Roma in the enlargement countries
with the work being done at EU level needs to be enhanced.

To support work on the above challenges, the Commission
will:

- Support and
encourage national follow-up meetings to the 2011 seminars; with rigorous
monitoring of implementation of operational conclusions through country
monitoring committees.

- Increase
and better target IPA funding through a Roma ‘facility’ to finance measures
agreed in the national seminars, with improved cooperation with other
international organisations.

- Hold a Roma
conference in Brussels in 2014 on the way forward, including prizes awarded to
NGOs for innovative and successful projects for Roma inclusion.

In the period 2007-2013,
over €100 million pre-accession assistance has been provided to support social
inclusion and integration of Roma in the enlargement countries, including
housing. Through IPA II, the Commission will better target funds
and strengthen strategic cooperation with external stakeholders, identifying
and building on best practice. Projects directly making an impact on the lives
of individual Roma persons will be prioritised, with a particular focus on
education and social inclusion.

- 
Lesbian, gay, bisexual,
transgender and intersex (LGBTI) persons

Homophobia,
discrimination and hate crimes on the basis of sexual orientation and gender
identity are still widespread phenomena in the Western Balkans and Turkey. This
is partly due to incomplete legislative frameworks, but also to the
inconsistent implementation of the legal provisions in place. Rights violations
include discrimination in areas such as employment and education, failure of
certain authorities to enforce freedom of speech and of assembly, hate speech,
intimidation and physical violence, even murders.

In June 2013, the EU
adopted guidelines for the promotion and protection of the enjoyment of all human
rights by LGBTI people to provide guidance for the EU’s external actions in
this field.
A successful strategy in this field in the enlargement countries requires
strong political commitment from governments, local authorities and law
enforcement bodies concerned, as well as from the EU. The
authorities in the enlargement countries can play a key role in bringing about
a change in mind-set across society as a whole towards LGBTI persons, which is
often at best ambivalent and at worst hostile.

There is an urgent need
for anti-discrimination legislation to be extended to include sexual
orientation and gender identity within its scope in Turkey and the former
Yugoslav Republic of Macedonia. Hate crime legislation still needs to be
introduced in most countries. Training of law enforcement, ombudsman
institutions, judges and media professionals is needed to raise awareness of
new legislation, to ensure proper implementation and contribute to
increasing understanding. Countries must pursue a zero-tolerance approach to
hate speech, violence and intimidation and take steps as a matter of
priority to address cases from the past and be prepared to react robustly to
new cases in the future. Countries need to take measures to counter
stereotypes and misinformation, including in the education system.
Religious or cultural values cannot be invoked to justify any form of
discrimination. Freedom of assembly and expression should be protected,
including through appropriate handling of pride parades, including in Serbia, where
regrettably
this year's parade was banned for the third year in a row on security grounds.

To support work on the above challenges, the Commission
will:

- Increase
political support and visibility by inter alia ensuring these issues
are systematically addressed in the appropriate fora with enlargement countries
as well as in the accession negotiations, setting clearer policy priorities and
improving monitoring and follow-up.

- Organise a
high-level LGBTI conference in 2014 with the aim of taking stock of the state
of play and progress achieved, sharing best-practice as well as adopting
operational conclusions.

- Improve
strategic cooperation with external stakeholders (international organisations
and civil society).

In the period 2007-2013,
over €2.5 million has been provided in specific support of LGBTI issues, both
through IPA and EIDHR. Through IPA II, the Commission will better
target funding including training of employees of relevant public institutions,
including judges and police, and targeted campaigns and other initiatives
(workshops, events) to raise awareness and increase tolerance. The Commission
will coordinate its assistance on these issues, notably with the
Council of Europe and OSCE.

e)   Dealing with bilateral issues and overcoming the legacy
of the past

The historic agreement
in April between Belgrade and Pristina creates the conditions for building a
common European future for both sides. It puts other bilateral disputes in a
new light, demonstrating what can be achieved with political will, courage and
EU support. Following numerous high level meetings facilitated by the EU,
Serbia and Kosovo agreed on 19 April to a ‘First agreement of principles
governing the normalisation of relations’, complemented in May by a
comprehensive implementation plan with a clear timeline until the end of 2013.
This paved the way for the European Council decision to open accession
negotiations with Serbia and the Council to approve negotiating directives for
an SAA with Kosovo.

Progress on bilateral
issues elsewhere in the region has also been made, with good
neighbourly relations – an essential element of the Stabilisation and
Association process -reinforced. Serbia and Bosnia and Herzegovina have
intensified contacts, Serbia’s President has expressed a public apology for
crimes committed in Bosnia and Herzegovina, and there has been a new more
constructive mood in relations between Serbia and Croatia. Bilateral and
multilateral contacts between the countries of the region have also continued
in sensitive areas such as war crimes, refugee return, organised crime and
police cooperation. Several agreements between war crimes prosecutors have been
signed, including between Bosnia-Herzegovina and both Croatia and Serbia.
Obstacles to extradition are being addressed. Representatives of the Presidents
of Bosnia and Herzegovina, Croatia, Montenegro, Serbia and Kosovo met in
September to discuss the statute of the truth and reconciliation initiative
RECOM for the first time. They agreed on the objectives and essential role of
this initiative. The regional housing project under the Sarajevo process is
being implemented by Croatia, Serbia, Bosnia and Herzegovina and Montenegro.

The progress made needs
to be consolidated. Many bilateral problems remain unresolved, including as
regards minorities and issues stemming from the break-up of the former
Yugoslavia such as border demarcation. Fundamentally opposed views of recent
history burden relations, as does the prevalence of inter-ethnic problems.
Political and other leaders need to show more responsibility and take a
stronger stand to condemn hate speech and other manifestations of intolerance
when it occurs. More work is needed to hold perpetrators to account for war
crimes, to address pending issues concerning refugees and internally displaced
persons and to normalise relations on the situation of minorities. There has
been insufficient progress on missing persons.

Inter-ethnic and status
disputes
continue to hinder the functioning of institutions within states, particularly
in Bosnia and Herzegovina, frustrating the reform process. Difficult
ethnic-related issues can be successfully addressed through dialogue and
compromise, as demonstrated by the Serbia-Kosovo agreement and ongoing
implementation of the Ohrid Framework Agreement in the former Yugoslav Republic
of Macedonia.

Outstanding bilateral
issues continue to negatively affect the accession process. In the spirit of
good neighbourly relations, open bilateral issues need to be addressed by the
parties concerned as early as possible. Every effort needs to be made to avoid
importing significant bilateral disputes into the EU. The Commission urges
parties to make every effort towards solving outstanding disputes in line with
established principles and means, including referring issues as appropriate to
the International Court of Justice or other existing or ad hoc dispute
settlement bodies. Slovenia and Croatia have shown that such an approach can
lead to positive results. Bilateral issues should not hold up the accession process.

The EU is now in the
process of integrating the requirement for normalisation of relations between
Belgrade and Pristina into the framework for accession negotiations with
Serbia. As regards the former Yugoslav Republic of Macedonia, maintaining good
neighbourly relations, including a negotiated and mutually acceptable solution
to the name issue, under the auspices of the UN, remains essential and needs to
be found without further delay. The Commission stands ready to facilitate the
creation of the necessary political impetus in the search for solutions and to
support related initiatives.

Reconciliation is
essential to promote stability in a region so recently afflicted by conflict.
Countries of the region, Member States and the EU need to do more to support
the creation of an environment in south-east Europe conducive to overcoming the
legacy of the past, thereby minimising the risk of open bilateral issues
being politically instrumentalised. The Commission underlines the importance
of Croatia’s declaration on promoting European values in South-East Europe.
Croatia’s willingness to use its unique position as the EU’s first Member State
seriously affected by the conflicts of the 1990s to provide political and
technical support to its neighbours on their EU path is commendable. The
Commission is ready to facilitate such support in particular through the Taiex
facility.

Regional cooperation has
continued within regional fora such as the Energy Community, the European
Common Aviation Area, the Central European Free Trade Area (CEFTA) and the
Regional School of Public Administration. The Regional Cooperation Council is
further developing its role as a platform for the promotion of issues of
importance to the whole region and its EU perspective thus further
mainstreaming regional cooperation in the countries’ political agenda.
Montenegro’s proposal for a Western Balkans Six grouping (bringing together
Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia,
Kosovo, Montenegro and Serbia) is a constructive initiative, drawing on the
positive experience of the Visegrad Four. It is important that such initiatives
are complementary and add value to existing arrangements, and that they are
regionally owned and driven. Active participation in the Danube and the
forthcoming Adriatic-Ionian macro-regional strategies can also support economic
and social development and promote EU integration.

To support work on the above challenges, the Commission
will:

- Encourage
the development of a network of bilateral agreements among countries party to
Stabilisation and Association Agreements to provide a framework for increased
political dialogue on the key issues.

- Continue to
offer political support and facilitation to all countries concerned to find
solutions to bilateral issues as early as possible and continue to actively
support the efforts in other fora to find solutions.

In the period 2007-2013,
the Commission provided significant pre-accession funding to projects and
initiatives supporting reconciliation, and, more generally, regional and
cross-border cooperation. Under IPA II, reconciliation
will be a key theme and the Commission will continue to support initiatives
aimed at addressing war legacy issues (Sarajevo process, war crimes prosecutor
network, truth and reconciliation process (RECOM)). Cooperation will also be
encouraged and supported in fields such as education, science, culture, media,
youth and sport. The Commission will continue to support regional initiatives,
such as the Regional
Cooperation Council and the Regional School of Public Administration. It will
be important to ensure close coherence and the alignment of funds between
country and regional programmes and relevant macro-regional strategies.

***

III. Conclusions and recommendations

Based on the above
analysis and the country specific assessments in the country conclusions in
annex, the Commission puts forward the following conclusions and recommendations:

I

1.         Twenty
years ago
the Western Balkans were torn by conflict. At the same time, the European Union
agreed the Copenhagen criteria for the entry of future Member States
into the EU. Ten years later, at the Thessaloniki Summit in 2003,
the EU Member States granted all countries of the Western Balkans a clear
perspective of EU membership, subject to fulfilment of the necessary
conditions, including those of the Stabilisation and Association Process.

Croatia has met these
conditions, and in July 2013 the EU welcomed Croatia as the 28th Member
State. Croatia’s accession is an example of the transformative power and
stabilising effect of the enlargement process. The historic agreement reached
by Serbia and Kosovo in April is further proof of the power of
the EU perspective and its role in healing history’s deep scars.

The Copenhagen criteria
are just as relevant today, reflecting the core values on which the EU
is founded: democracy, the rule of law, respect for fundamental rights. The economic
challenges facing the EU underline the importance of the economic
criteria and the need to further consolidate economic and financial stability
and foster growth and competitiveness in the enlargement countries.

2.         The
accession process today is more rigorous and comprehensive than in the
past, reflecting the evolution of EU policies as well as lessons learned from
previous enlargements. The process is built on strict but fair
conditionality with progress towards membership dependent on the steps
taken by each country to meet the established criteria. This is crucial
for the credibility of enlargement policy and for providing incentives
to enlargement countries to pursue far reaching reforms. A key lesson from the
past is the importance of addressing the fundamentals first.

3.         The rule
of law is now at the heart of the enlargement process. The new approach,
endorsed by the Council in December 2011, means that countries need to tackle
issues such as judicial reform and the fight against organised crime and
corruption early in accession negotiations. This maximises the time countries
have to develop a solid track record of reform implementation, thereby ensuring
that reforms are deeply rooted and irreversible. This new approach is a key
element of the negotiating framework for Montenegro and will shape our work
with the other enlargement countries. The visa liberalisation process has
brought significant benefits to citizens of the Western Balkans and has
incentivised the countries to implement reforms in the field of rule of law as
well as border control and migration. The countries need to step up efforts to
consolidate reforms and implement measures to prevent abuse of the liberalised
visa regime.

4.         The
global economic crisis has underlined the need for all countries to strengthen
their economic governance. None of the Western Balkan countries is yet a
functioning market economy. All are affected by high unemployment, particularly
among the young. It is essential that these countries intensify reforms to
achieve sustainable growth and address the challenges necessary to meet the
economic criteria and improve competitiveness. The Commission has set
out a number of proposals to support this aim, including the introduction of
national economic reform strategies and of action plans for public financial
management. The Commission will work with the major international financial
institutions to support reforms leading to fulfilment of the economic criteria.
The Western Balkans Investment Framework will continue to support investments
boosting jobs and growth. An environment more conducive to attracting foreign direct
investment is crucial.

5.         Events
in a number of enlargement countries have underlined the importance of strengthening
democratic institutions and ensuring that democratic processes are more
inclusive. The Commission encourages and will support through financial
assistance a stronger role for civil society and cross-party platforms for EU
integration. The Commission will also promote electoral, parliamentary and
public administration reforms, in close cooperation with other international
organisations in these fields.

6.         The European
Union is founded on common values and principles, including respect for fundamental
rights. All countries of the Western Balkans and Turkey need to undertake
further reforms to ensure that the principles of freedom of expression and the
protection of the rights of persons belonging to minorities, including Roma
are respected in practice. More robust measures are needed to protect other vulnerable
groups from discrimination, in particular on grounds of sexual orientation.
The Commission will increase the priority attached to these issues in the
accession process, including better targeted IPA funding and increased
assistance to support Roma inclusion through a Roma ‘facility’.

7.         Regional
cooperation and good neighbourly relations are essential elements of
the Stabilisation and Association process. Issues related to past conflicts,
including war crimes and refugee return, as well as the treatment of minorities
and ensuring equal rights for all citizens remain key challenges to stability
in the Western Balkans and need to be fully addressed. To this end, the
Commission will continue to support initiatives aimed at overcoming the legacy
of the past. Regional cooperation needs to be further strengthened, to be
inclusive and regionally-owned. The Commission fully supports the work of the
South-East European Cooperation Process (SEECP) and Regional Cooperation
Council, including the Regional 2020 strategy.

8.         A
renewed effort to overcome bilateral disputes among enlargement countries
and with existing Member States is needed. Bilateral issues need to be
addressed by the parties concerned as early as possible and should not hold up
the accession process. The Commission urges parties to make every effort
towards solving outstanding disputes in line with established principles and
means. The context of accession negotiations can generate political impetus for
the resolution of disputes. The Commission will continue to offer political
support and facilitation to all countries concerned to find solutions to
bilateral issues as early as possible and continue to actively support the
efforts in other fora to find solutions. The Commission will encourage the
development of a network of bilateral agreements among countries party to
Stabilisation and Association Agreements to provide a framework for increased
political dialogue on the key issues.

9.         2014
sees the launch of the second Instrument for Pre-Accession Assistance
for the period to 2020. Through IPA II, the EU will continue to provide substantial
support to the enlargement countries in their preparations for accession and
will also support regional and cross-border cooperation. The focus will be on
areas of shared interest with fewer priorities and larger projects. The key
challenges facing the countries will be addressed in a more strategic and
coherent way, with innovations including a sector approach, incentives for
better performance, increased budget support and a stronger focus on achieving
measurable results. To help meet the high investment needs and to create growth
and employment, the Commission will strengthen cooperation with IFIs so that
IPA funds can also leverage private capital through innovative financial
instruments.

10.       Enlargement
policy depends on the support of EU citizens. It is essential for Member
States, together with the EU institutions, to lead an informed debate on the
political, economic and social impact of the enlargement policy. They have a
key role in providing citizens with the facts on enlargement policy and, in so
doing, to inform them of the benefits, including its major contribution to
peace, security and prosperity, and to address any concerns they may have.

II

11.       Montenegro: The launch
of accession negotiations last year marked the opening of a new stage for
Montenegro on its path to the EU. The deep and lasting political reforms
necessary to implement the new approach to chapter 23 on judiciary and
fundamental rights and chapter 24 on justice, freedom and security will require
strong political will and enhanced administrative capacity. The accession
process needs to be inclusive, with strong involvement of civil society
throughout. Montenegro has adopted detailed action plans providing a
comprehensive reform agenda for strengthening the rule of law. Implementation
of these plans and progress in meeting the interim benchmarks on these chapters
will determine the overall pace of accession negotiations. In this regard,
implementation of the July constitutional amendments strengthening the
independence of the judiciary and further progress with respect to the fight
against organised crime and corruption, including at high level, are essential.

Public administration
reform is a priority to ensure Montenegro has the capacity to apply the acquis,
to tackle politicisation and increase transparency and professionalism of the
civil service. Events over the last months, in particular the alleged use of
public funds for party political purposes, have highlighted the importance of
strengthening citizens’ trust in public institutions. In this context, it is
important to ensure that investigations are completed thoroughly and rapidly
and that any appropriate action is taken. Adequate follow-up of the work of the
parliamentary group on the electoral process is also needed. Freedom of
expression needs to be strengthened, including by properly investigating all
cases of violence and threats against journalists and bringing perpetrators to
justice. In the economic field, improving the business environment and tackling
high unemployment are key issues. Restructuring of the aluminium producer KAP
is now urgent.

12.       Serbia: 2013 has
been a historic year for Serbia on its path to the European Union. The decision
of the June European Council to open accession negotiations represents the
start of a significant new phase in Serbia’s relations with the European Union.
This is recognition for the progress made on key reforms and the substantial
efforts made by Serbia towards normalisation of its relations with Kosovo. In
September, the Stabilisation and Association Agreement entered into force.

Serbia has actively and
constructively worked towards a visible and sustainable improvement of
relations with Kosovo. In April, Serbia’s engagement in the EU-facilitated
dialogue resulted in the landmark ‘First agreement of principles governing the
normalisation of relations’ with Kosovo (the First Agreement), which was
complemented in May by an implementation plan. Implementation has continued and
has already led to a number of irreversible changes on the ground. The parties
also reached agreement on energy and on telecommunications. Serbia needs to
remain fully committed to the continued normalisation of relations with Kosovo
and implementation of all agreements reached in the dialogue.

The Commission started the
screening of the acquis in September and looks forward to the first
inter-governmental conference on Serbia’s accession by January 2014 at the very
latest, once the Council has adopted the negotiating framework. In this new
demanding phase, Serbia will need to pay particular attention to the key areas
of rule of law, particularly the implementation of the reform of the judiciary,
fight against corruption and organised crime, public administration reform,
independence of key institutions, media freedom, anti-discrimination and
protection of minorities. The Roma Strategy needs to be proactively
implemented. Serbia needs to continue improving the business environment and
develop a competitive private sector. Tackling high unemployment is also essential.
Serbia needs to build on the positive contribution made to regional cooperation
over the past year, which included stepping up high-level contacts with
neighbouring countries.

13.       The
former Yugoslav Republic of Macedonia: The political crisis which
followed events in parliament late last year exposed deep divisions among
political parties, affecting the functioning of parliament, and demonstrated
the need for constructive politics in the national interest. Continued
implementation of the 1 March political agreement is key. The EU agenda remains
the country’s strategic priority. The High Level Accession Dialogue has
contributed to progress in most priority areas, including the elimination of
court backlogs and progress in the fight against corruption. The country has
already reached a high level of alignment relative to where it is in the
accession process and has made further progress in improving its ability to
take on the obligations of membership.

The reform priority for
the coming year should be the effective implementation and enforcement of
existing legal and policy frameworks. Particular attention should be paid to
the rule of law, including the independence of the judiciary and achieving
further results in the fight against corruption and organised crime. Freedom of
expression and the media situation in general also remain issues of concern.
The review of the Ohrid Framework Agreement, particularly important for
inter-ethnic relations, must be completed and its recommendations implemented.
The Roma Strategy needs to be proactively implemented. The blurring of the
distinction between state and party needs to be addressed, as highlighted by
the OSCE/ODIHR in the electoral context. High unemployment needs to be tackled
and public financial management strengthened.

The Commission considers
that the political criteria continue to be sufficiently met and recommends that
accession negotiations be opened. Moving to the next, more challenging stages
of the enlargement process is essential in order to consolidate and encourage
further reforms as well as to strengthen inter-ethnic relations. The High Level
Accession Dialogue is a useful tool which will continue to focus on key issues,
including good neighbourly relations, but it cannot replace the accession
negotiations.

The Commission remains
convinced that a decision to open accession negotiations would contribute to
creating the conditions conducive to improving good neighbourly relations in
general and, in particular, to finding a mutually acceptable solution to the
name issue, which the Commission considers essential. After almost two decades,
intense political commitment from all sides in the UN process is required to
finally reach a solution, with the active engagement of the international
community.

This is the fifth time
the Commission recommends the opening of accession negotiations with this
country. No decision has been taken by the Council to date. Failure to act on
this recommendation poses potentially serious challenges to the former Yugoslav
Republic of Macedonia and to the EU. This calls into question the credibility
of the enlargement process, which is based on clear conditionality and the
principle of own merits. The lack of a credible EU perspective puts at risk the
sustainability of the country’s reform efforts.

Upon invitation by the
European Council, the Commission reiterates its intention to present without
delay a proposal for a negotiating framework, which takes into account the need
to solve the name issue at an early stage of accession negotiations, and will
carry out the process of analytical examination of the EU acquis
beginning with the chapters on the judiciary and fundamental rights, and
justice, freedom and security. The Commission considers that, if the screening
and the Council discussions on the negotiating framework were under way, the
necessary momentum could be created which would support finding a negotiated
and mutually accepted solution to the name issue even before negotiating
chapters are opened. Applying the new approach on chapters 23 and 24 also to
the former Yugoslav Republic of Macedonia would provide the necessary tools to
tackle key issues of concern also to Member States and contribute to the
sustainability of reforms.

In advance of the tenth
anniversary of the entry into force of the SAA in April 2004, the Commission
also calls for a fifth time on the Council to adopt its 2009 proposal to move
to the second stage of the association, in line with the relevant provisions of
the SAA, which foresee that the association shall be fully realised over a
transitional period of a maximum of ten years.

14.       Albania: Last
October, the Commission recommended that the Council should grant Albania the
status of a candidate country subject to the completion of key measures in the
areas of judicial and public administration reform and revision of the
parliamentary rules of procedure. In December 2012, with a view to deciding
whether to grant candidate status, the Council invited the Commission to report
as soon as the necessary progress had been achieved, also taking into account
the further action taken by Albania to fight corruption and organised crime,
including by proactive investigations and prosecutions of such cases. In this
regard, Albania has adopted the remaining key judicial, public administration
and parliamentary reform measures with cross-party consensus. The parliamentary
elections in June were assessed by the international election observation
mission led by OSCE/ODIHR as competitive with active citizen participation
throughout the campaign and genuine respect for fundamental freedoms. In the
fight against corruption and organised crime, Albania has taken initial steps
towards improving the efficiency of investigations and prosecutions and
strengthening cooperation between law enforcement bodies. The number of
convictions in corruption and in money laundering cases has increased, as has
the number of investigations into the trafficking of people and drugs. All of
the Council of Europe’s recent recommendations concerning financing of
political parties and legal provisions on corruption have been satisfactorily
addressed. The new government in Albania has made a strong commitment to
fighting corruption and has prioritised this issue in its programme.

In view of
Albania having achieved the necessary progress, the Commission recommends that
the Council should grant Albania the status of a candidate country on the
understanding that Albania continues to take action in the fight against
organised crime and corruption.

Further to
the Commission’s 2010 Opinion, Albania needs to meet the following key
priorities for the opening of accession negotiations:

1.   continue
to implement public administration reform with a view to enhancing
professionalism and depoliticisation of public administration;

2.   take
further action to reinforce the independence, efficiency and accountability of
judicial institutions;

3.   make
further determined efforts in the fight against corruption, including towards
establishing a solid track record of proactive investigations, prosecutions and
convictions;

4.   make
further determined efforts in the fight against organised crime, including
towards establishing a solid track record of proactive investigations,
prosecutions and convictions;

5.   take
effective measures to reinforce the protection of human rights, including of
Roma, and anti-discrimination policies, as well as implement property rights.

The
Commission stands ready to support Albania’s efforts towards meeting these key
priorities by engaging in a high level dialogue with the country.

Constructive
and sustainable dialogue between the government and the opposition on
EU-related reforms will be vital in securing Albania’s EU future. Albania’s
constructive engagement in regional cooperation remains essential.

15.       Bosnia
and Herzegovina is at a standstill in the European integration
process. The country needs to implement without further delay the Sejdic-Finci
judgement of the European Court of Human Rights in order to move forward on the
EU path. Addressing this judgement is not only crucial for the country to
advance on the EU path but also for the legitimacy and credibility of the
Presidency and the House of Peoples of Bosnia and Herzegovina which are to be
elected in 2014. Bosnia and Herzegovina also needs urgently to establish a co-ordination
mechanism on EU matters so that it can speak with one voice on the EU agenda.

Without the consensus
necessary to move forward on the EU path, there is a strong risk that
pre-accession assistance will not produce the expected results. Given that no solution has
yet been found on the implementation of the Sejdic-Finci ruling and that the EU
co-ordination mechanism has not been established, the same level of EU pre
accession funds cannot be maintained.

The Commission has
decided to postpone further discussions on IPA II until the country is
back on track in the EU integration process. In the absence of tangible
progress, Bosnia and Herzegovina risks losing significant IPA funds.

The EU is firmly
committed to supporting Bosnia and Herzegovina and its citizens to fulfil their
hopes and ambitions of making progress on their EU path. Further progress
depends on the ability of the political leaders to work together and to agree
on a compromise that unlocks the path to the EU. Agreeing such a compromise will
help renew the trust of citizens in the capacity of the leadership to deliver
on EU integration. This would pave the way for the entry into force of the
Stabilisation and Association Agreement and thereafter for a credible
membership application.

While there has been
limited progress in the overall reform of the judicial system, a number of
recommendations issued by the Commission in the framework of the Structured
Dialogue on Justice are being implemented. This dialogue shows the potential of
the enlargement agenda and the benefits of effective engagement. Some progress
was also made in reducing the backlog of war crimes cases. Thorough
preparations at all levels, supported by the EU and other international organisations,
also made it possible to carry out the long awaited census. The country is
faced with major challenges, however. Increased attention is needed on the rule
of law, including judicial reform and the fight against corruption and
organised crime, public administration reform, freedom of expression, including
to address intimidation of journalists, and on tackling discrimination,
including of Roma. Further economic reforms are needed to improve the weak
business environment and create a single economic space in the country.

Following Croatia’s
accession, the Commission finds it unacceptable that Bosnia and Herzegovina has
to date refused to adapt the Interim Agreement/Stabilisation and Association
Agreement to take into account its traditional trade with Croatia. The
Commission calls on Bosnia and Herzegovina to revise its position urgently so
that an adaptation based on traditional trade flows can be finalised as soon as
possible.

16.       Kosovo: 2013 has
been a historic year for Kosovo on its path to the European Union. The
decisions of the Council in June authorising the opening of negotiations for a
Stabilisation and Association Agreement (SAA) represent the start of a
significant new phase in EU-Kosovo relations. This is recognition for the
progress made on key reforms and the substantial efforts made by Kosovo towards
normalisation of its relations with Serbia. The negotiations on the Agreement
will be formally opened this month. The Commission aims to complete these
negotiations in spring 2014, to initial the draft agreement in summer and
thereafter to submit the proposals for the Council to sign and conclude the
Agreement.

Kosovo has actively and
constructively worked towards a visible and sustainable improvement of
relations with Serbia. In April, Kosovo’s engagement in the EU-facilitated
dialogue resulted in the landmark ‘First agreement of principles
governing the normalisation of relations’ with Serbia (the First Agreement),
which was complemented in May by an implementation plan. Implementation has
continued and has already led to a number of irreversible changes on the
ground. The parties also reached agreement on energy and on telecommunications.
Kosovo needs to remain fully committed to the continued normalisation of
relations with Serbia and implementation of all agreements reached in the
dialogue. The Commission will provide additional IPA funds to help the
implementation of the April agreement in the communities concerned.

The rule of law
continues to be a key priority for Kosovo. It is also a cornerstone of the
Stabilisation and Association Process of which Kosovo is a part. The Structured
Dialogue on the Rule of Law will therefore continue to support and guide Kosovo
in this area, including in the discussions on the future of the EU rule of law
mission in Kosovo, EULEX. Kosovo continues to take measures to address the
priorities set out in the visa road map and the Commission will report in the
first half of 2014.

Kosovo now needs to
focus on the implementation of the reforms to meet its obligations under a
future SAA. Particular attention should be paid to tackling organised crime and
corruption, pursuing judicial and public administration reforms, ensuring the rights
of persons belonging to minorities – including the Roma - and addressing trade
issues. Kosovo needs to urgently address unemployment and the structural
weaknesses that affect its labour market.

The Commission also
calls on all people eligible to vote to participate in the upcoming municipal
elections in November. This is an important opportunity for the local community
in northern Kosovo to assert its democratic rights and to play a full part in
the future development of Kosovo. The Commission expects that the authorities
will ensure that the elections are inclusive and fully respect democratic
principles.

17.       Turkey is a
candidate country and a strategic partner for the European Union. Turkey, with
its large, dynamic economy, is an important trading partner for the EU and a
valuable component of EU competitiveness through the Customs Union. Turkey has
a strategic location, including on energy security, and plays an important
regional role. The Commission underlines the importance of ongoing cooperation
and dialogue on foreign policy issues. The Positive Agenda, launched in
2012, continues to support and complement accession negotiations with Turkey
but is not a substitute for negotiations. The full potential of the EU-Turkey
relationship is best fulfilled within the framework of an active and credible
accession process, where the EU remains the anchor for Turkey’s economic and
political reforms. More high level contacts between Turkey, the EU and its
Member States would further strengthen cooperation.

Important progress on
reforms has been made during the last twelve months. The fourth judicial reform
package strengthens the protection of fundamental rights, including freedom of
expression and the fight against impunity for cases of torture and
ill-treatment. The government has started an historic peace process aimed at
ending terrorism and violence in the Southeast of the country and paving the
way for a solution of the Kurdish issue. Announced measures in the
democratisation package presented in September 2013 foresee further reforms on
a range of important issues, including the use of languages other than Turkish,
rights of persons belonging to minorities and addressing the current high
thresholds for representation in parliament and budget support to political
parties. Implementation in cooperation with stakeholders and in line with
European standards is key. The cross-party conciliation committee of the parliament,
which was set up to draft a new constitution, has achieved agreement on a
number of articles. With the adoption of a comprehensive law on foreigners and
international protection, an important step has been taken towards adequate
protection of asylum seekers. The Ombudsman Institution has been established
and is already actively working to fulfil its role. Public debate on topics
previously considered sensitive has grown. Turkey has also provided vital
humanitarian assistance to large numbers of Syrians fleeing their country.
Other positive developments include the ratification by Turkey of the Trans
Anatolian Pipeline Agreement aimed at connecting with the Trans Adriatic
Pipeline, bringing natural gas to the EU from the Caspian via Turkey.

The excessive use of
force by police and the overall absence of dialogue during the protests in
May/June have raised serious concerns. This underlines the urgent need for
further reforms and the promotion of dialogue across the political spectrum and
in society more broadly, as well as for respect of fundamental rights in
practice. A number of administrative and judicial investigations have been
launched into police conduct during the protests. These should be followed
through in accordance with European standards and those responsible brought to
account. The Ministry of Interior has issued two circulars aimed at improving
procedures for police interventions during demonstrations. It is important to
proceed with plans to establish a law enforcement monitoring mechanism so as to
ensure the independent supervision of police conduct. Further changes are
needed in the Turkish legal system, especially to strengthen freedom of
expression and of the media, and freedom of assembly and of association;
judicial practice should systematically reflect European standards. The fourth
judicial reform package should be implemented in full. The wave of protests in
June is also the result of the broad democratic reform that has taken place in
the past decade and the emergence of a vibrant and diverse civil society that
needs to be respected and consulted more systematically at every level of
decision making, irrespective of who holds the majority in parliament.

All of these
developments underline the importance of EU engagement and of the EU remaining
the benchmark for reform in Turkey. To this end, accession negotiations need to
regain momentum, respecting the EU’s commitments and established
conditionality. In this regard, the opening of chapter 22 on regional policy
represents an important step; the Commission looks forward to the IGC taking
place at the earliest opportunity. Turkey has made progress in a number of
other chapters. Turkey can accelerate the pace of negotiations by the
fulfilment of benchmarks, meeting the requirements of the negotiating framework
and by respecting its contractual obligations towards the EU.

Progress in the
accession negotiations and progress in the political reforms in Turkey are two
sides of the same coin. It is in the interest of both Turkey and the EU that
the opening benchmarks for chapter 23: Judiciary and Fundamental rights and 24:
Justice, Freedom and Security are agreed upon and communicated to Turkey as
soon as possible with a view to enabling the opening of negotiations under
these two chapters so as to enhance the EU’s dialogue with Turkey in areas of
vital mutual interest and to support ongoing reform efforts. The signature of
the EU-Turkey readmission agreement and the simultaneous start of the visa
dialogue towards visa liberalisation would give a new momentum to EU-Turkey
relations and bring concrete benefits for both. It is important that these two
processes move forward and that the signature and ratification of the
readmission agreement in Turkey be swiftly finalised. Further strengthening of
EU-Turkey energy cooperation and progress in the accession negotiations would
facilitate the interconnection and integration of the energy markets of the EU
and Turkey.

The Commission stresses
all the sovereign rights of EU Member States which include, inter alia,
entering into bilateral agreements, and to explore and exploit their natural
resources in accordance with the EU acquis and international law,
including the UN Convention on the Law of the Sea. In line with the repeated
Council and Commission positions from previous years, it is now urgent that
Turkey fulfils its obligation of fully implementing the Additional Protocol and
makes progress towards normalisation of relations with the Republic of Cyprus.
This could provide new momentum to the accession process, allowing in
particular progress to be made on the eight chapters covered by the Council
conclusions of December 2006. The Commission also urges the avoidance of any
kind of threat, source of friction or action that could damage good neighbourly
relations and the peaceful settlement of disputes. Turkey’s commitment and
contribution in concrete terms to a comprehensive settlement to the Cyprus
issue is crucial.

18.       As
regards the Cyprus issue, the Commission expects the Greek Cypriot and
Turkish Cypriot communities to resume fully-fledged negotiations on a
comprehensive settlement under the auspices of the United Nations. The
Commission expects both sides to quickly move into substance with the aim of
swiftly reaching a successful conclusion. All parties are encouraged to
contribute to establishing a positive climate between communities, through
steps that benefit Cypriots in their daily lives, and to prepare the public for
the necessary compromises. The Commission considers that the benefits of
reunification will outweigh any concessions that may need to be made to this
end. In particular, all Cypriots would fully profit from the exploitation of
hydrocarbon resources. The Commission stands ready to further strengthen its
support for the process, should the two parties request it and UN agree.

19.       Iceland: Iceland had
reached an advanced stage of accession negotiations when the new government decided
to put the negotiations on hold, and the accession process has come to a
standstill. The government has stated that it will undertake an assessment of
the negotiations to date as well as on the developments in the European Union,
which will be submitted to the Icelandic parliament for discussion in the
coming months. The Commission has suspended preparatory work on IPA II.
Under all circumstances, Iceland remains an important partner for the EU.

ANNEX

Conclusions
on Montenegro, Serbia, the former Yugoslav Republic of Macedonia, Albania,
Bosnia and Herzegovina, Kosovo, Turkey and Iceland

Montenegro

The opening of EU
accession negotiations with Montenegro in June 2012 marked the beginning of a
new and intensive phase for Montenegro on its path to the EU. The deep and
lasting political reforms necessary to implement the new approach to chapter 23
on judiciary and fundamental rights and chapter 24 on justice, freedom and
security will require strong political will and enhanced administrative
capacity. The accession process needs to be inclusive, with strong involvement
of civil society throughout.

During the reporting
period Montenegro focused on the preparation of comprehensive action plans
which will guide the country’s reform process on the rule of law. In June, the
government adopted these action plans, which constitute the opening benchmarks
for chapters 23 and 24. Following the adoption of the action plans the
Commission in August recommended the opening of these chapters and, in
September, the Council invited Montenegro to submit its negotiating positions.
Work is proceeding in line with the new approach to these chapters set out in
the framework for negotiations with Montenegro.

Screening meetings for
all negotiating chapters were completed at the end of June 2013. So far,
negotiations on two chapters (science and research; education and culture) have
been provisionally closed. Opening benchmarks have been set for six chapters
(free movement of goods; right of establishment and freedom to provide
services; competition policy; agriculture and rural development; food safety,
veterinary and phytosanitary policy; regional policy and coordination of
structural instruments).

Public administration
reform is a priority to ensure Montenegro has the capacity to apply the acquis,
to tackle politicisation and increase transparency and professionalism of the
civil service. Events over the last months, in particular the alleged use of
public funds for party political purposes, have highlighted the importance of
strengthening citizens’ trust in public institutions. In this context, it is
important to ensure that investigations are completed thoroughly and rapidly
and that any appropriate action is taken. Adequate follow-up of the work of the
parliamentary group on the electoral process is also needed. Montenegro also
needs to ensure an adequate follow-up to the long-standing OSCE/ODIHR
recommendations on its election legislation and establish a clear,
broadly-accepted delineation between public and party interests. Montenegro
continues to sufficiently meet the political criteria for membership in
the EU. Parliamentary and presidential elections of October 2012 and April
2013, respectively, have not altered the strategic priority given by the
country to the objective of EU accession. While these elections were qualified
by the OSCE/ODIHR as professionally and efficiently administered, some
shortcomings were also identified. Non-recognition of presidential election
results by the opposition resulted in a two-month boycott of parliament by the
largest opposition group. The boycott was ended when a cross-party agreement
was reached to form two parliamentary bodies to investigate allegations of
abuse of public funds for election purposes and to draft recommendations to
improve the electoral process. The parliamentary inquiry committee on the
alleged misuse of public funds completed its work in July. The parliament
failed to agree on conclusions that would, inter alia, establish
political responsibility and limited itself to a technical report. Judicial
follow-up remains to be ensured.

A working group on
building trust in the electoral process has already adopted a draft law on a
single voters’ list, to replace the law on voters’ register, as well as draft
amendments to the law on personal identity cards. In the area of rule of
law, parliament adopted the long awaited amendments to the constitution on
strengthening the independence of the judiciary, which are broadly in line with
the recommendations of the Venice Commission.

Montenegro is actively involved
in regional and international police and judicial co-operation. While some
verdicts related to drug smuggling were issued, only a few cases referred to
crimes such as trafficking in human beings and money laundering. Some
first-instance convictions in cases of organised crime and corruption have been
overturned. Impunity in relation to cases of ill-treatment of detainees remains
a serious concern.

Montenegro has taken a
leading role in promoting regional cooperation, notably through its proposal for
the establishment of the ‘Western Balkans Six’ initiative.

As regards the International
Criminal Court, Montenegro still maintains a 2007 bilateral immunity
agreement with the United States, granting exemptions from the jurisdiction of
the Court. Montenegro needs to align with the EU position.

Looking ahead,
Montenegro needs to ensure the political and judicial follow-up to the alleged
misuse of public funds for party political purposes. It also needs to carry
through the work of the parliamentary group on the electoral process, by
adopting legislative and other measures to broaden political support and
enhance public trust in the electoral process and state institutions.

Enhancing public trust
in the state is closely linked to further strengthening the rule of law. The
effective and timely implementation of Montenegro ́s action plans in these areas
will therefore play a central role. Particular focus should be given to reforms
improving the independence, accountability and professionalism of the judiciary,
through reinforcing integrity safeguards, as well as merit-based appointments.
The implementation of the constitutional amendments will play an important role
in this regard. In parallel, Montenegro needs to develop its track record
regarding the systematic investigation and prosecution of cases of corruption
and organised crime, including high level cases, as well as regarding the
imposition of sanctions that are commensurate to the gravity of the crimes
committed.

Freedom of expression
needs to be strengthened, including by properly investigating all cases of
violence and threats against journalists and bringing perpetrators to justice. Increased
attention is required to tackle the shortcomings in the protection of human
rights by judicial and law enforcement authorities, especially as regards
vulnerable groups. Roma face discrimination, especially in terms of social and
economic rights, and remain under-represented at political level. Lesbian, gay,
bisexual, transgender and intersex (LGBTI) activists are still exposed to
discrimination, attacks are rarely reported and penalties still need to be
reinforced.

The adoption of the plan
for the reorganisation of the public sector and the entry into force of the new
law on civil servants and state employees are positive steps. Fair and
competitive recruitment of civil servants is a precondition to develop a
professional administration. The undated resignation letters are an issue of
concern and should be returned to the staff who signed them.

As regards the economic
criteria, Montenegro has made some further progress towards a functioning
market economy. The country should be able to cope with competitive pressures
and market forces within the Union over the medium term, provided that it
continues to address current weaknesses through appropriate macroeconomic
policies and structural reforms.

After entering in
recession in 2012, the country came out of recession in 2013. The resilience of
tourism and foreign direct investments (FDI) together with an increase of electricity
exports supported the recovery, compensating for a weak domestic demand. The
current account deficit is declining, but still remains very high. In July, the
aluminium producer KAP was put into bankruptcy procedure, which represents a
risk to public finances, in view of the considerable size of contingent
liabilities. Unemployment remained very high. Credit growth turned positive
after four years of contraction, but the high levels of non-performing loans
still weigh on bank capitalisation and hence, on credit supply.

To cope with the
existing economic challenges and to reduce external imbalances, Montenegro
needs to strengthen competitiveness, by improving productivity and attracting
further FDI into more sectors than tourism and real estate. The establishment
of a sound business environment continues to be hampered by the weak rule of
law and corruption. The high unemployment rate requires bridging the gap
between supply and demand of labour skills and allowing more independent wage
setting at company level. It also requires the strengthening of the public
employment service in order to implement the activation policies and establish
an inclusive and efficient labour market. Authorities should consider
objectively the viability of the aluminium conglomerate under market conditions
and the best possible solution without exacerbating the pressure on public
finances. The path of fiscal consolidation should be continued, including
efforts to collect tax arrears. The high level of non-performing loans remains
a matter of concern and calls for a reinforced banking supervision enforcing
adequate provisioning. The informal sector remains an important challenge.

As regards the ability
to take on the obligations of EU membership, Montenegro is at varying degrees
of alignment. Strengthening of administrative capacities is a cross-cutting
challenge in many areas. In chapters such as public procurement, company law,
intellectual property law, information society and media, taxation, and
enterprise and industrial policy, Montenegro is sufficiently advanced for the
Commission to have recommended the opening of accession negotiations.

In other areas, such as
free movement of goods; right of establishment and freedom to provide services;
agriculture and rural development; food safety, veterinary and phytosanitary
policy; and regional policy and coordination of structural instruments, opening
benchmarks – often including strategies for alignment with the acquis –
have been set. These benchmarks should now guide Montenegro’s work in the
coming months. For the competition policy chapter, elaborating a restructuring
plan for the aluminium producer KAP is particularly urgent, in order to bring
Montenegro in line with its obligations under the Stabilisation and Association
Agreement. In the area of environment and climate change, considerable efforts,
including more strategic planning, are needed to ensure alignment and
implementation of the acquis.

Serbia

2013 has been a historic
year for Serbia on its path to the European Union. Serbia has actively and
constructively worked towards a visible and sustainable improvement of
relations with Kosovo. In April, Serbia’s engagement in the EU-facilitated
dialogue resulted in the landmark ‘First agreement of principles governing
the normalisation of relations’ (the First Agreement), which was complemented
in May by an implementation plan. The two parties have in particular agreed
that neither side will block, or encourage others to block the other side’s
progress on their respective EU paths. This represents a fundamental change in
the relations between the two sides. Implementation of the
First Agreement has continued and has already led to a number of irreversible
changes on the ground. The parties have reached agreements on energy and on
telecommunications. There has also been progress in the implementation of
agreements reached in the technical dialogue and Serbia’s cooperation with
EULEX has continued to improve in a number of areas.

Serbia has reinvigorated
the momentum of reforms and has stepped up high-level contacts with
neighbouring countries in an effort to ensure a positive contribution to
regional cooperation. Serbia has taken some steps to consolidate its
fiscal situation and to improve the business environment. It continued
aligning its legislation to the requirements of the EU legislation in many
fields, which are now monitored within the National Plan for the Adoption of
the Acquis for the period 2013-2016. The Stabilisation and Association
Agreement between the EU and Serbia entered into force on 1 September.

As a result of the
significant progress achieved, a new phase has been opened in relations between
Serbia and the European Union. The European Council decided to open accession
negotiations on 28 June, following the Commission’s recommendation of 22 April.
The Commission submitted its proposal for a framework for negotiations to the
Council on 22 July. The Commission also started the analytical examination of
the EU acquis (‘screening’) in September. The negotiating framework is
due to be adopted by the Council soon and confirmed by the European Council
with a view of holding the first inter-governmental conference on Serbia’s
accession in January 2014 at the very latest.

In this new, demanding
phase of EU-Serbia relations, Serbia will need to further intensify its efforts
to achieve full compliance with all membership criteria. It will also be
crucial to communicate regularly on the benefits and opportunities the
accession process creates for all citizens in Serbia, all the way to accession.

Among the key challenges
it faces, Serbia will need to pay particular attention to the key areas of rule
of law, particularly the reform of the judiciary, fight against corruption and
fight against organised crime, public administration reform, independence of
key institutions, media freedom, anti-discrimination and protection of
minorities.

Serbia needs to remain fully
committed to the continued normalisation of relations with Kosovo and
implementation of all agreements reached in the dialogue, including by
cooperating with EULEX as appropriate. Serbia needs to complete the
implementation of the First Agreement in particular on police, justice and
municipal elections in Kosovo. It is important that Serbia continues to
encourage wide participation of Kosovo Serbs in the forthcoming local elections
in Kosovo. Full application of the principle of inclusive regional cooperation
remains notably to be ensured, including by avoiding problems such as the one
encountered with the summit of the South East European Cooperation Process
(SEECP). Serbia will be expected to continue to make an active contribution to
regional cooperation and reconciliation.

Serbia sufficiently
fulfils the political criteria. The government has actively pursued the EU
integration agenda, demonstrating consensus in key policy decisions and
enhancing the consultation process. Parliament has improved the transparency of
its work, the consultation process on legislation as well as its oversight of
the executive. However, parliament still often applies urgent procedures, which
unduly limits time and debate for scrutiny of draft legislation.

Serbia has paid
particular attention to the improvement of the rule of law, which will be a key
issue, in line with the new approach on Chapters 23 (judiciary and fundamental
rights ) and 24 (justice, freedom and security). Serbia adopted comprehensive
new strategies in the key areas of judiciary, fight against corruption and
anti-discrimination following an extensive consultation process. There was a
visible proactive approach to investigations in the fight against corruption,
including in high-level cases. Regional and international cooperation has also
led to some results in the fight against organised crime. Criminal
investigations have been launched in a number of cases but final convictions
remain rare in these areas. Serbia also continued to fully cooperate with the
International Criminal Tribunal for the Former Yugoslavia (ICTY).

As regards freedom of
expression, defamation has been decriminalised. In line with earlier
commitments on Roma inclusion, measures have been implemented and a new action
plan has been adopted. The legal framework for the protection of minorities
remains generally respected but its consistent implementation throughout Serbia
remains to be built-up, in areas such as education, use of language, and access
to media and religious services in minority language. While some additional
efforts were made by the authorities and independent institutions on the protection
of other vulnerable groups, in particular of the lesbian, gay, bisexual,
transgender and intersex (LGBTI) population, sufficient political support is
lacking. It was in particular regrettable that the pride parade was banned for
the third year in a row on security grounds; this was a missed opportunity to
demonstrate respect for fundamental rights.

Looking ahead, Serbia
will have to pay particular attention to strengthening the independence of key
institutions and notably the judiciary. The constitutional and legislative
framework still leaves room for undue political influence, especially when it
comes to the role of parliament in judicial appointments and dismissals.
Further reforms will require a comprehensive functional analysis of the
judiciary in terms of cost, efficiency and access to justice. Serbia’s track
record in effectively investigating, prosecuting and convicting perpetrators of
corruption and organised crime remains to be seriously strengthened. The
implementation of recent changes to the legislation on ‘abuse of office’ should
be carefully monitored with a view to a comprehensive review of economic
crimes. Effective legislation for the protection of whistle-blowers needs to be
set-up. The effective implementation of the strategies and action plans in the
fields of judiciary and anti-corruption will test Serbia’s preparedness and
willingness to move forward. Those strategic documents may require adjustments
further to the screening exercise.

The government also
needs to enhance its steer in the area of public administration reform and
further develop a transparent, merit-based civil service system. The legal
framework for the civil service at the local level remains to be properly
applied and developed.

Further attention needs
to be given to freedom of the media. Serbia needs now to move forward the
implementation of the media strategy starting with the adoption of the expected
legislation on public information and the media, on public service broadcasters
and on electronic communications. The direct state financing and control of
media as well as the sustainability of public broadcasters remain key issues to
be addressed. The action plan of the anti-discrimination strategy needs to be
adopted and implemented. Authorities need to enhance the protection of media,
human right defenders and other vulnerable groups, including LGBTI population,
from threats and attacks from radical groups. Recent progress to improve the
situation of minorities, including the Roma, needs to be further built up over time
including with additional financial resources. The issue of housing and access
to documents for Roma needs continued attention. More attention needs to be
given to regions facing severe socio-economic conditions, in particular in the
South and East of Serbia. The elections to the National Minority Councils in
2014 will provide a good opportunity for Serbia to reaffirm its commitment to
the protection of minorities. The electoral process will have to be carefully
conducted, taking into account past recommendations from independent
institutions.

It will be important
that Serbia continues to make an active contribution to regional cooperation
and further develops its ties with neighbouring countries, including by
addressing outstanding bilateral issues.

As regards the economic
criteria, Serbia has made some progress towards establishing a functioning
market economy. Serbia needs to make significant efforts in restructuring its
economy so as to cope in the medium-term with the competitive pressures and
market forces within the Union.

In 2012, Serbia went
through another recession and the economy contracted by 1.7%. High exports
growth has softened the effects of depressed domestic demand and led to a mild
and uneven recovery in the first half of 2013. A series of fiscal consolidation
efforts were taken mostly on the revenue side. The process of restructuring
state-owned enterprises was revived. Some progress has been made with regards
to fighting corruption and improving property rights.

Growth remains narrowly based
and the first signs of economic recovery in 2013 did not spill over to the
labour market. Unemployment and the budget deficit remain very high. Rigidities
persisted on the labour market and sustainable employment creation represents a
major challenge. The adoption of a credible medium-term fiscal adjustment
programme is still lacking. State presence in the economy is significant and
state-owned companies continued to accumulate big losses. Serbia needs to
continue improving the business environment and should make strong efforts to
develop a competitive private sector. The functioning of market mechanisms is
hampered by legal uncertainty and corruption. The informal sector remains an
important challenge.

As regards its ability
to take on the obligations of membership, Serbia has continued
aligning its legislation to the requirements of the EU legislation in many
fields, efforts which were underpinned by the adoption of a National Plan for
the Adoption of the acquis. Good progress has been registered in public
procurement with the adoption of a new Law on Public Procurement which provides
for further alignment with the EU acquis and includes improved
provisions on the prevention of corruption. The issue of the central bank’s
independence has been partly addressed with amendments to the law. Two new laws
were adopted in the fields of corporate accounting and auditing, aiming at
further alignment in the area of company law. The institutional framework for
SME policy and SMEs access to finance improved. Measures taken to improve the
business environment, in particular on the business impact assessment for new
legislation, are a welcome development. The population and agriculture censuses
have been finalised successfully. However, the changes to the law on copyright
regarding fee collection and exemptions constitute a step backwards in the
alignment to the EU acquis.

Looking ahead, Serbia
should redouble its efforts to align with the EU acquis with particular
attention to the effective implementation of adopted legislation. In
particular, Serbia will need to intensify efforts towards alignment in the
fields of water, waste management, air quality and nature protection and
towards market opening, unbundling and cost reflective tariffs in the energy
sector. Further efforts are also needed in the areas of state aid control,
where the independence of the Commission for State Aid Control needs to be
further established and the exemption of enterprises under privatisation from
state aid rules need to be repealed. Social protection systems, labour
relations and social dialogue need to be substantially strengthened, notably at
the tripartite level of social dialogue. The GMO law needs to be aligned with
EU legislation to enable WTO accession. Substantial further
efforts are needed to develop public-sector financial management and control
based on the underlying concept of managerial accountability and to develop
full external audit capacity.

The Interim Agreement
(IA) of the Stabilisation and Association Agreement (SAA) continued to be
smoothly implemented.

The former
Yugoslav Republic of Macedonia

The former Yugoslav
Republic of Macedonia was the first country to sign a Stabilisation and
Association Agreement with the EU, in 2001. It has been a candidate country for
eight years, since the Commission’s positive Opinion in November 2005 and the
Council’s decision in December 2005. Since 2009, the Commission has assessed
that the country sufficiently meets the political criteria and recommended the
opening of negotiations. The Commission has also recommended, since 2009, that
the second stage of the association, under the Stabilisation and Association
Agreement, should begin. No decision has been taken by the Council in either
case. Twenty years after the country’s entry into the United Nations, a
solution to the name issue should be found without further delay.

In the absence of the
negotiation process, the main fora for discussion and monitoring
of reforms are the bodies established under the SAA as well as the High Level
Accession Dialogue (HLAD) established in 2012. The HLAD has contributed to
progress in most priority areas. The progress being made under HLAD will stand
the country in good stead when negotiations begin. However it is not, and
cannot be, a substitute for moving to the opening of accession negotiations.

The political crisis
which followed events in parliament late last year exposed deep divisions among
political parties, affecting the functioning of parliament and demonstrated the
need for constructive politics in the national interest. During the adoption of
the 2013 budget, the forcible removal of opposition MPs and journalists from
the parliament chamber resulted in the largest opposition grouping boycotting
parliament and threatening a boycott of the local elections. The protracted
stalemate was resolved through the implementation of the 1 March political
agreement. This involved a return to parliament by opposition MPs,
participation in the municipal elections, forward-looking recommendations by a
Committee of Inquiry, the signature of a cross-party Memorandum of
Understanding on the country’s strategic Euro-Atlantic objectives and further
work on electoral reforms. The relaunch of the dialogue between government and
journalists remains outstanding. The consensus on the report of the Committee
of Inquiry showed that constructive solutions can be found, with political
will, through dialogue and compromise. The recommendations of the Committee of
Inquiry need to be implemented in full.

Overall, the country
continues to sufficiently meet the political criteria. The municipal
elections in March / April 2013 were assessed by the OSCE/ODIHR as
professionally and efficiently administered while noting the blurring of the
distinction between state and party and recommending further amendment of
electoral legislation. The country completed the bulk of its judicial reforms
between 2004 and 2010. Further progress has been made this year in the area of
the efficiency of the judiciary. Progress has also been made with the establishment
of comprehensive data on the anti-corruption enforcement track-record, which
should be built on in future. On freedom of expression, progress on the media
dialogue stalled following the expulsion of journalists from the parliament and
despite developments on the legislative framework, the country’s reputation on
media freedom deteriorated. The closure of a number of media outlets in recent
years has also reduced the diversity of different viewpoints available to
citizens.

As the country has already
reached a high level of alignment, relative to where it is in the accession
process, the priority for the coming year should be the effective
implementation and enforcement of existing legal and policy frameworks, similar
to countries already engaged in accession negotiations.

In the area of the rule
of law, the independence and competence of courts needs to be further enhanced
and more focus placed on the quality of justice provided to the citizen.
Corruption remains prevalent in many areas and continues to be a serious
problem. The country needs to demonstrate the tangible impact of existing
anti-corruption measures and to implement effectively measures to tackle
organised crime. On freedom of expression, the high degree of polarisation of
the media, often along political lines, hampers the development of objective
reporting, places economic pressure on journalists and media owners (including
through the opaque use of government advertising) and fosters poor professional
standards. Dialogue between the government and media representatives needs to
be re-established and produce concrete results in changing the media culture as
well as establishing a climate of confidence-building and trust. The remaining
ODIHR recommendations should be fully implemented. The Roma Strategy needs to
be proactively implemented. More action is needed to denounce intolerance e.g. vis-à-vis
the lesbian,
gay, bisexual, transgender and intersex (LGBTI) community.

It is also urgent that
the review of the Ohrid Framework Agreement, particularly important for
inter-community and inter-ethnic relations, be completed and that its
recommendations be implemented. This, as well as continued decentralisation, a
key element of the Agreement, will contribute to stability in the country and beyond.

The country generally
maintains good relations with other enlargement countries and plays an active
role in regional cooperation. A constructive approach to relations with
neighbouring EU Member States remains important. Actions and statements which
negatively impact on good neighbourly relations should be avoided.

In terms of
the economic criteria, the country remains well advanced and, in some
areas, has made further progress towards becoming a functioning market economy.
The country should be able to cope with competitive pressures and market forces
within the Union in the medium term, provided that it vigorously implements its
reform programmes in order to reduce significant structural weaknesses.

Economic
activity stagnated in 2012, with growth resuming in the first half of 2013. Against the
background of a challenging external environment, macroeconomic stability was
preserved. Unemployment
remains very high, especially among young people. The rising deficit and public
debt levels increased the country’s vulnerability.

Measures need
to be undertaken in order to address the underlying reasons for the high
unemployment, in particular tackling the skills mismatch. The sustainability of
public finances needs to be strengthened. Fiscal policy needs to be aligned
with the country’s structural reform priorities and oriented towards growth
enhancing spending. The introduction of a medium term fiscal framework and
strategic planning would contribute to strengthening fiscal discipline. Further
efforts are needed to effectively implement public financial management, in
order to ensure the most efficient and transparent use of public and EU
resources. To secure more private sector investment, further efforts are needed
to improve the business environment, which is negatively affected by
corruption, as well as lengthy and costly market exit procedures. The informal
sector remains an important challenge.

The country has deep and
wide-ranging cooperation with the EU across all areas of the acquis and
is at an advanced level of legislative alignment, at strategic and
institutional level, with the focus now on administrative capacity and
coordination mechanisms within the national administration to ensure effective
implementation. The country has made further progress in improving its ability
to take on the obligations of membership. The country continues to fulfil
its commitments under the Stabilisation and Association Agreement (SAA),
in advance of the tenth anniversary of the SAA’s entry into force.

In the field of the
internal market, a good level of legislative alignment has been achieved in the
fields of capital movements, postal services and company law. In the area of
justice and home affairs, the country is well advanced in its preparations on
visa policy, external borders and Schengen, and police cooperation. On public
administration reform, work should continue on implementing the principles of
transparency, merit and equitable representation. Further efforts are needed
particularly in the areas of regional policy, environment and climate change
where the implementation of EU-funded projects needs to improve, as well as
water quality, industrial pollution control and risk management. On social
policy and employment, measures are needed to achieve an inclusive and
efficient labour market. Public internal financial control needs to be
strengthened and developed across the public administration. Overall, the
country has achieved a level of alignment with the acquis sufficient to
move to the next stage of the accession process.

Albania

Last October, the
Commission recommended that the Council should grant Albania the status of a
candidate country subject to the completion of key measures in the areas of
judicial and public administration reform and revision of the parliamentary
rules of procedure. In December 2012, with a view to deciding whether to grant
candidate status, the Council invited the Commission to report as soon as the
necessary progress had been achieved, also taking into account the further
action taken by Albania to fight corruption and organised crime, including by
proactive investigations and prosecutions of such cases. In this regard,
Albania has adopted the remaining key judicial, public administration and
parliamentary reform measures with cross-party consensus. The parliamentary
elections in June were assessed by the international election observation
mission led by OSCE/ODIHR as competitive with active citizen participation
throughout the campaign and genuine respect for fundamental freedoms. In the
fight against corruption and organised crime, Albania has taken initial steps
towards improving the efficiency of investigations and prosecutions and
strengthening cooperation between law enforcement bodies. The number of
convictions in corruption and in money laundering cases has increased, as has
the number of investigations into the trafficking of people and drugs. All of
the Council of Europe’s recent recommendations concerning financing of
political parties and legal provisions on corruption have been satisfactorily
addressed. The new government in Albania has made a strong commitment to
fighting corruption and has prioritised this issue in its programme.

Further to the Commission’s
2010 Opinion, Albania needs to meet the following key priorities for the opening
of accession negotiations. Albania will need to 1) continue to implement public
administration reform with a view to enhancing professionalism and
depoliticisation of public administration; 2) take further action to reinforce
the independence, efficiency and accountability of judicial institutions; 3)
make further determined efforts in the fight against corruption, including
towards establishing a solid track record of proactive investigations,
prosecutions and convictions; 4) make further determined efforts in the fight
against organised crime, including towards establishing a solid track record of
proactive investigations, prosecutions and convictions; 5) take effective
measures to reinforce the protection of human rights, including of Roma, and
anti-discrimination policies, as well as implement property rights.

Constructive and
sustainable dialogue between the government and the opposition on EU-related
reforms will be vital in securing Albania’s EU future. Albania’s constructive
engagement in regional cooperation remains essential.

Albania has made further
progress towards fulfilling the political criteria for membership of the
EU. The ruling majority and opposition cooperated to adopt a number of legal
instruments in parliament. This includes the adoption of the Law on Civil
Service, the Law on the High Court and the Parliament’s Rules of Procedure and
a set of amendments to the Criminal Code and the Civil Procedure Code.

While the process
leading up to the June 23 parliamentary elections was marked by tensions,
jeopardising at times the work of election administration bodies, the elections
were competitive and conducted in an overall orderly manner, with a high voter
turnout. Albania made further progress regarding public administration reform,
in particular through the adoption of the Law on Civil Service.

Further steps have been
taken to reform the judiciary, including streamlining of the court system.
Improved working methods of anti-corruption bodies, an increase in convictions
and better inter-institutional cooperation resulted in some progress in the
fight against corruption, providing an initial track record of results, which
needs to be strengthened. Better monitoring and transparency in key areas, such
as property registration, customs, higher education and health, testify to
increased prevention awareness. The Council of Europe’s recommendations on financing
of political parties and legal provisions on corruption have been addressed.
However, corruption remains a particularly serious problem which will require
determination and concerted efforts to address. Regarding organised crime,
international police cooperation has improved, as has the use of threat
analysis; seizures of drugs and criminal assets have increased. The Council of
Europe’s recommendations on the fight against money laundering have been
fulfilled. Important Criminal Code amendments addressed trafficking in human
beings and other serious offences.

In the field of human
rights, freedom of assembly and association, as well as freedom of thought,
conscience and religion, has generally been respected. In the field of
anti-discrimination progress was made, for instance through the action plan on
the rights of lesbian, gay, bisexual, transgender and intersex (LGBTI) persons.
In the area of freedom of expression, the Law on Audio-Visual Media
substantially improved the legislative framework for audio-visual media in
Albania.

Looking ahead, Albania
needs to accelerate the reform of the judiciary. The judiciary’s institutional
and legal set-up should be reviewed and strengthened. To ensure the
independence, transparency, accountability and efficiency of the judiciary,
essential legislation remains to be finalised or adopted, including
constitutional amendments to depoliticise appointments to the High Court.
Recently adopted legislation has to be effectively implemented with the full
support of both the politicians and the judicial profession.

Moreover, Albania needs
to pay particular attention to the implementation of public administration
reform, in particular regarding structural laws and administrative acts.
Secondary legislation on the new Civil Service Law needs to be adopted and
implemented swiftly. Continuity in the public administration has to be ensured
and professionalism, de-politicisation and accountability need to be enhanced.

Targeted measures in the
fight against corruption will be necessary, including through empowering a
central coordinating body with the necessary authority and capacities as well
as strong political support. The prevention and repression capacity and
independence of law enforcement institutions need to be enhanced. The proper
follow up of independent institutions’ reports by the parliament needs to be
ensured.

The track record of
effective investigations and prosecutions of organized crime also needs to be
further developed, building on the initial results. Further efforts are
necessary to conclude amendments to the Criminal Procedure Code and to
effectively expand the use of threat assessment, intelligence exchange and
targeted, proactive investigations. A more proactive approach is also required
as regards investigating unexplained wealth and suspicions of money laundering.

In the field of human
rights, the drafting of new legislation and implementation of existing
legislation should be priorities, with a clear focus on the rights of persons
with disabilities, children’s rights and Roma inclusion. As concerns freedom of
expression, additional efforts are required to fully guarantee the independence
of the media regulatory authority.

As
regards the economic criteria, Albania made some further progress
towards becoming a functioning market economy. Albania should be able to cope
with competitive pressures and market forces within the Union in the medium
term, provided that it accelerates structural reforms.

Albania has maintained
macroeconomic stability. GDP growth decelerated but remained positive
mainly due to external demand. Low inflation created room for monetary policy
easing to stimulate growth, but its transmission to the real economy is yet to
be seen, as credit growth slowed amid high and rising non-performing loans. The
budget deficit remains high and public debt increased further, leading to the
statutory debt ceiling of 60% of GDP being breached and abolished. There was a
slight improvement in the labour market but unemployment remains high. The
current account deficit has narrowed but remains large. The economy remains
vulnerable to both domestic structural weaknesses and global economic
volatility.

Albania needs to
complement stability-oriented fiscal and monetary policies with structural
reforms to ensure long-term sustainable economic growth. Albania will have to
address the high levels of budget deficit and public debt and its short term
bias. Moreover, it will need to improve fiscal predictability by reducing the
recurrent overestimation of revenues and by collecting taxes more efficiently.
Improving the business and investment environment is essential for diversifying
the economy and boosting its long-term growth potential. This could, inter
alia, be achieved by reinforcing the rule of law, tackling corruption and
addressing payment arrears, as well as developing infrastructure and enhancing
human capital. The informal sector remains an important challenge.

The Stabilisation and
Association Agreement (SAA) continued to be overall smoothly implemented and
Albania continued aligning its legislation to the requirements of the EU
legislation in a number of areas, enhancing its ability to take on the obligations
of membership. Improvements were made in areas such as public procurement,
statistics, justice, freedom and security, and customs. Albania needs to make
additional efforts to ensure effective enforcement of intellectual and industrial
property rights, and pay particular attention to the energy sector, including
the diversification of energy sources, the functioning of the electricity
market, addressing concerns over network losses and low bill collection rates.
It also needs to address the issue of VAT refunds with determination, including
as regards existing backlogs, and to reinforce environmental protection
including through sustainable investments in the field of waste management and
waste water. Further efforts are needed in the fields of employment and social
policy. The administrative capacity and professionalism of bodies charged with
the implementation of the acquis needs to be strengthened and the
independence of regulatory bodies safeguarded. In several acquis areas,
in particular public procurement and financial control, it is important to
enhance transparency and accountability.

Bosnia and
Herzegovina

Bosnia and
Herzegovina is at a standstill in the European integration process while other
countries in the region are moving ahead. The Stabilisation and Association
Agreement (SAA) was signed in 2008 and the ratification process was completed
in 2011. The SAA has not yet entered into force because the country has not met
the remaining requirements, notably a credible effort in implementing the European
Court of Human Rights judgement in the Sejdic-Finci case regarding
discrimination against citizens on the grounds of ethnicity. Therefore, the EU
relations
with Bosnia and Herzegovina are still governed by the Interim Agreement (IA) of
2008.

The political
representatives do not share a vision on the overall direction and future of
the country or on how it should function. There is no thorough internal
political dialogue on fundamental issues such as the EU integration process nor
any priority-setting related to it. The EU agenda has not been a priority for
the political representatives of the country resulting in no progress in its
European perspective. Short-term party or ethnic interests have been
prevailing over a future-oriented policy of anchoring Bosnia and Herzegovina in
the EU. The political deadlock in the Federation, which has been ongoing for
more than one year, has a negative impact on the governance both in the
Federation and at the State level. There is continued questioning by certain
political players of the unity of Bosnia and Herzegovina as a single State.

The two key commitments
in the 2012 Roadmap on the country’s EU membership application, notably the
actual implementation of the Sejdic-Finci judgement and the establishment of an
effective coordination mechanism on EU matters, have not been met. The EU has
engaged in intensive facilitation efforts to help Bosnia and Herzegovina’s
political leaders to find common ground for implementing the Sejdic-Finci
judgement, but they could not agree on a solution.

Addressing this
judgement is not only crucial for the country to advance on the EU path but
also for the legitimacy and credibility of the Presidency and the House of
Peoples of Bosnia
and Herzegovina, which are to be elected in 2014. It would unlock the EU
accession process, which is vital for Bosnia and Herzegovina’s evolution from a
post-conflict country to becoming an EU Member State in the future.
Without political courage and determination, the European perspective of Bosnia
and Herzegovina will not materialise.

Equally urgent and
important is the establishment of a co-ordination mechanism on EU matters
between various levels of government. In a highly decentralised country like
Bosnia and Herzegovina, such a mechanism is of crucial importance in order for
the respective representative from Bosnia and Herzegovina to be able to speak
on behalf of the whole country and to commit it when interacting with the EU.
It is for the country to develop urgently a mechanism complying with this basic
requirement.

It is becoming
increasingly difficult to justify providing pre-accession funds to a country
whose political representatives are not willing to reach the consensus
necessary to move forward on the pre-accession path. Without this consensus,
there is a strong risk that pre-accession assistance will not produce the
expected results. Given that no solution has yet been found on the
implementation of the Sejdic-Finci ruling and the EU coordination mechanism has
not been established, the same level of funding under the Instrument for
Pre-accession Assistance (IPA) cannot be maintained. The Commission has decided
to postpone further discussions on IPA II until the country is back on
track in the EU integration process. In the absence of tangible progress,
Bosnia and Herzegovina risks losing significant pre-accession funds.

The country’s
preparations for adapting to Croatia’s accession have been slow but the
necessary agreements related to crossing of persons and goods at the border
with Croatia were signed in time before 1 July. The Commission finds it
unacceptable that Bosnia and Herzegovina has to date refused to adapt the
IA/SAA to take into account its traditional trade with Croatia. The Commission
calls on Bosnia and Herzegovina to revise its position urgently so that an
adaptation based on traditional trade flows can be finalised as soon as
possible.

The country
has made very limited progress in addressing the political criteria. Having not
implemented the Sejdic-Finci ruling, the country has not yet ended the
discriminatory practice whereby citizens of Bosnia and Herzegovina not
declaring themselves as belonging to one of the three Constituent Peoples are
prevented to run for the Presidency and/or the House of Peoples of Bosnia and
Herzegovina.
Legislative
processes in general remain extremely slow, due to the lack of political will
to reach compromises. The frequent use of the urgent procedure to
introduce laws in the Parliamentary
assembly of Bosnia and Herzegovina resulted in extensive use of the Vital National
Interest procedure. Due to the lack of political agreement, legislation was
often blocked by using the Entity veto.

There is
still a high level of corruption, effective prevention measures against money
laundering are lacking, and limited progress has been made in the fight against
organised crime and terrorism. While there has been limited progress in the
overall reform of the judicial system, a number of recommendations issued by
the Commission in the framework of the Structured Dialogue on Justice are being
implemented: in the field of war crimes processing, the determination of
jurisdiction for cases has advanced significantly in accordance with the
National War Crimes Strategy and with the allocation of the adequate financial
and human resources from the relevant budgets and major contributions from IPA.
The backlog of cases has reduced. The conclusion of the Protocols on
Cooperation in Prosecution of Perpetrators of War crimes, Crimes against
Humanity and Genocide with both Croatia and Serbia is promising. Overall, there
are still serious shortcomings as regards the independence, effectiveness,
accountability and impartiality of the judiciary in Bosnia and Herzegovina.

The implementation of
the existing human rights instruments, including those protecting lesbian, gay,
bisexual, transgender and intersex (LGBTI) persons from violence and hate
speech as well as the implementation of Roma action plans, remains limited.
Legislative gaps still hamper sustainable return and local integration of
refugees and internally displaced persons. Legal provisions guaranteeing
freedom of expression are in place, yet intimidation of journalists and editors
remain an issue of concern as do financial pressures on public broadcasters.
Bosnia and Herzegovina has continued to participate actively in regional
cooperation and to maintain good neighbourly relations. Remaining border and
property issues with neighbouring countries need to be addressed.

Thorough preparations at
all levels, supported by the EU and other international organisations, have
made it possible to carry out the long-expected population census in Bosnia and
Herzegovina, the first since 1991.

As regards the economic criteria, Bosnia and Herzegovina has made
little further progress towards a functioning market economy. Considerable
further reform efforts need to be pursued with determination to enable the
country to cope over the long-term with competitive pressure and market forces
within the Union.

The economy contracted by 1.1% in 2012. However, indicators for the
first half of 2013 show some signs of recovery. Unemployment is still very
high. The quality of public finances remained low, even though public finance
management was somewhat strengthened. Despite some slight improvement,
consensus on economic and fiscal policy essentials remains weak, thus impeding
reforms at the country level. The large and inefficient public sector with
multiple overlapping competences on state, entity and municipal or cantonal level
(especially in the Federation) continues to impose risk for fiscal
sustainability. An inefficient legal and judicial system hampers enforcement
capacity and is
a clear deterrent for investment and a source of corruption.

The
composition and the low efficiency of public spending in Bosnia and Herzegovina
remain a concern. In this context, fiscal reporting needs to be further
improved in order to increase the quality of analysis and policy design. Structural rigidities such as the excessive labour taxation and
poorly targeted social transfers would require measures to spur labour demand.
Authorities in the Federation should proceed with development of the pension
reform. Given the high share of public companies in the economy, the
authorities should reinvigorate privatisation, which has the potential to
improve the fiscal situation and bring about more competition. The private
sector needs to be supported by a sound business environment, most notably by
improving contract enforcement and establishing a single economic space in the
country. The informal sector remains an important challenge.

The lack of
genuine political support for the EU agenda is reflected in very limited
progress also as regards approximation to EU laws and standards. This
concerns in particular the fields of veterinary and food safety; competition;
public procurement; energy; environment and climate change; transport;
employment and social policies. In other areas, such as rural development or
regional policy, there is little progress due to the lack of agreement on the
relevant country-wide strategies. In a number of cases appointments for
important bodies need to be made. Failure to do so is hampering the legislative
progress. Other institutions such as the State Aid Council have been suffering
from the lack of financial resources and could therefore not function properly
so far. One of the few positive exceptions is the area of intellectual,
industrial and commercial property rights where preparations to align with EU
standards are advanced.

In order for Bosnia and
Herzegovina to be able to export products of animal origin to the EU it is
necessary to advance rapidly with the transposition of the EU’s veterinary and
food safety legislation. Bosnia and Herzegovina is the only country in the region
which has not aligned its legislation with the 2004 EU directives on public
procurement. It needs to do so as a matter of urgency. The country needs to
maintain consistent efforts for a sustainable implementation of all reforms
introduced under the visa liberalisation roadmap, also regarding the broader
measures at the borders aimed at strengthening national and regional security.
Activities related to preventing abuses of the visa-free regime need to
continue.

Kosovo

2013 has been a historic
year for Kosovo on its path to the European Union. The decisions of the Council
in June authorising the opening of negotiations for a Stabilisation and
Association Agreement (SAA) represent the start of a significant new phase in
EU-Kosovo relations. The negotiations will be formally opened this month. The
Commission aims to complete these negotiations in spring 2014, to initial the
draft agreement in summer and thereafter to submit the proposals for the
Council to sign and conclude the agreement.

Kosovo has actively and
constructively worked towards a visible and sustainable improvement of relations
with Serbia. In April, Kosovo’s engagement in the EU-facilitated dialogue
resulted in the landmark ‘First agreement of principles governing the
normalisation of relations’ with Serbia (the First Agreement), which was
complemented in May by an implementation plan. The two parties have in
particular agreed that neither side will block or encourage others to block the
other side’s progress on their respective EU paths. This represents a
fundamental change in relations between the two sides. Implementation of the
First Agreement has continued and has already led to a number of irreversible
changes
on the ground. The parties have reached agreement on energy and on
telecommunications. There has also been progress in the implementation of
agreements reached in the technical dialogue, with the support of the EU rule
of law mission EULEX. Kosovo needs to remain fully committed to the continued
normalisation of relations with Serbia and implementation of all agreements
reached in the dialogue. Kosovo needs to complete the implementation of the
First Agreement in particular on police, justice and municipal elections.

The First Agreement has
been met with resistance in northern Kosovo. Pristina’s restraint and
inclusive approach, together with the positive role played by Belgrade, have
prevented escalation. Following the First Agreement, Serbian police
stations operating in northern Kosovo have been closed; salary payments from
Serbia to police officers employed by Kosovo have ceased; Serbian courts have
stopped processing criminal cases in Kosovo; and municipal assemblies in the
four northern municipalities have been dissolved. The municipal elections
scheduled for November are also to take place in northern Kosovo. It is
important that these elections are held in an orderly manner and that all
people eligible to vote participate and exercise their democratic rights. On 19
September, one member of EULEX was killed in an attack on an EULEX convoy in
northern Kosovo. The leadership of both Kosovo and Serbia condemned the attack
in the strongest terms.

Kosovo has delivered on
important policy reforms. In April, the Commission and the High
Representative of the Union for Foreign Affairs and Security Policy confirmed[1]
that Kosovo had met the short-term priorities on the rule of law, public
administration, protection of minorities and trade as identified in the
feasibility study[2]
of October last year. In April, the Commission also issued its recommendation
to the Council to sign and conclude a framework agreement allowing Kosovo to
participate in European Union programmes.

In December, Kosovo
became a member of the European Bank for Reconstruction and Development. In
June, Kosovo signed a framework agreement with the European Investment Bank and
the Council of Europe Development Bank agreed for Kosovo to join. In February,
the Regional Cooperation Council decided to amend its statute to allow Kosovo
to become a participant in its own right.

The visa
liberalisation dialogue has remained very high on Kosovo’s political
agenda. Pristina has made efforts to ensure progress. In February, the
Commission adopted its first report on Kosovo’s fulfilment of requirements of
the visa liberalisation roadmap.[3]
Kosovo adopted its visa liberalisation action plan in April. To date, three
meetings of senior officials have taken place. In close cooperation with the
Commission, the EU Office in Pristina and EULEX, Kosovo has made progress in
amending legislation as recommended in the report. Further efforts in this
respect are needed. Kosovo needs also to focus on implementation of the
legislation.

Broad political
consensus on Kosovo’s European perspective has been instrumental to the
momentum of the approximation process. The National Council on European
Integration has also pursued this objective. It is important that this
consensus is maintained and broadened further. These efforts should prove a key
contribution to the negotiations on the Stabilisation and Association
Agreement.

The Commission’s
feasibility study sets out the priority areas that Kosovo needs to focus on to
meet its obligations under a Stabilisation and Association Agreement. These are
the rule of law, the judiciary, public administration, electoral reform and the
Assembly, human and fundamental rights, protection of minorities, trade and
internal market issues, and phytosanitary and veterinary issues.

In the context of the political
criteria, the Kosovo government has increased its capacity to address
priorities of the European integration process. It has demonstrated this
capacity by its follow-up to the short-term priorities of the feasibility study
and the preparations for the negotiations of the Stabilisation and Association
Agreement. Steps have also been taken to improve the Assembly’s
oversight of the government’s work. However, the decision of the Assembly to
debate the outcome of a judicial case was a setback to Kosovo’s efforts to
strengthen its institutions of democratic governance.

Kosovo has demonstrated
a commitment to deliver results in the fight against organised crime and
corruption, including launching investigations and strengthening the
legislative framework. First steps have been taken to produce harmonised
statistics in this area. Kosovo has also continued its good cooperation with
EULEX. The judicial system underwent important reform. Its coherent
implementation will be essential for bringing further positive changes and will
need to be closely monitored. In January, the laws on courts and on prosecution
entered into force, introducing new court and prosecution structures. The new
legal framework is expected to contribute to the independence, effectiveness,
accountability and impartiality of the judicial system. Kosovo has also continued
the readmission of persons from Member States.

Following feasibility
study recommendations, the Assembly has modified the articles of the Criminal
Code on criminal liability of the media and the protection of journalists’
sources. The Implementation Monitoring Council, which brings Kosovo authorities
and the Serbian Orthodox Church together, has been established and functions
well. Public broadcasting in the Serbian language has also started. A new
Language Commissioner was appointed and his office has started to perform its
functions.
The budget and staff of the Ombudsperson have increased so that this
institution can now deliver on its role as protector of good governance and
human rights in Kosovo.

Kosovo still needs to
ensure that electoral reform is completed and the legal framework
reflects best practice in the EU. The Assembly needs to enhance its
oversight of the executive by improved scrutiny of draft legislation and by
monitoring the implementation of policies and laws. The government needs to
ensure adequate participation in the work of the Assembly. Financial
independence of the Assembly has improved, but further steps are needed (for
example improving rules of procedure and legislation on the Assembly) to
enhance the financial and administrative independence of the Assembly.

On the rule of law,
Kosovo needs to provide concrete evidence of results in fighting organised
crime and corruption as a matter of priority, and strengthen legislation and
its implementation. Kosovo needs to improve further the reliability of
statistics in these areas. Kosovo needs to actively support EULEX in the
implementation of its mandate, including the Special Investigative Task Force.
Kosovo is progressively taking on increasing responsibilities from EULEX. The Structured
Dialogue on the Rule of Law is an essential forum for Kosovo and the EU to
review progress in this regard.

Political interference
in the work of the judiciary remains a serious concern. The Judicial and
Prosecutorial Councils need to strongly respond to attacks against judges,
prosecutors and the judicial institutions. The Assembly and the government need
to do the same. Appropriate security and protection measures for judges and
court staff, as well as prosecutors, witnesses and plaintiffs, are necessary.
Kosovo needs to take further measures to reduce the total backlog of cases,
including the enforcement of court rulings, and ensure trials are conducted in
appropriate premises and in line with court procedures. The recruitment of
judges and prosecutors from minorities in accordance with the legislative
framework needs to continue. Kosovo needs to ensure that the special
prosecution responsible for cases of organised crime, war crimes and corruption
maintains its competencies.

As concerns public
administration, Kosovo needs to focus on the implementation of legislation,
the strategy and the action plan, which requires strong political guidance. The
professionalism of the civil service needs to be enhanced, and the persons
belonging to minorities need to be well represented in line with the
legislation. Political interference with recruitment and appointment of public
employees needs to stop. In the area of human and fundamental rights,
the complex and overlapping institutional set-up for their promotion and
protection needs to be simplified. More efforts are needed in investigating and
prosecuting physical attacks against journalists. The same applies to violent
incidents against the lesbian, gay, bisexual, transgender and intersex (LGBTI)
community. Progress is also needed in enforcing property rights, for example
through decreasing the backlog of cases and improving enforcement of judicial
and administrative decisions. Personal data protection legislation needs to be
better enforced. The Assembly needs to design a sustainable long-term funding
mechanism for the public broadcaster; appointments to its board still need to
be completed.

On the protection of
minorities, legislation on cultural heritage and the Serbian Orthodox
Church needs to be implemented. Local authorities need to be further supported
to continue the process of decentralisation. The strategy and action plan for
the Roma, Ashkali and Egyptian communities need to be implemented vigorously,
as the situation of these minorities on the ground remains a major concern.
This is also important in the context of the visa liberalisation process.
Attacks motivated by ethnicity or religion have to be investigated, prosecuted
and perpetrators brought to justice.

As regards the economic
criteria, Kosovo has made some progress towards establishing a functioning
market economy. Considerable reforms and investments are needed to enable it to
cope over the long term with competitive pressure and market forces.

The challenging economic
situation in the region and the EU has started to affect Kosovo’s economy,
although less than in other countries of the region. Kosovo’s GDP grew by 2.5%
in 2012. Fiscal policy has been prudent and budget performance has been on
track. A legally binding fiscal rule was introduced, to be implemented in 2014.
Unemployment has remained very high. Kosovo has continued significant
investments in its infrastructure.

Continuous efforts are
needed to support macroeconomic stability and improvement in the social
situation. Kosovo needs to improve its competitiveness and business
environment, and support the private sector so as to reduce unemployment. A
sound business environment demands further measures to tackle the weak rule of
law and corruption. Privatisation needs to continue. The informal sector
remains an important challenge.

The priorities in the
area of European standards need to be tackled in the context of
negotiations on the Stabilisation and Association Agreement. Kosovo has
completed the restructuring of the Ministry for Trade and Industry so as to be
able to negotiate the trade-related parts of the agreement effectively and it
has completed an impact analysis. Kosovo has also undertaken efforts to prepare
the agricultural census.

As regards trade and
internal market issues, improving Kosovo’s business statistics is
essential. Kosovo needs to continue implementing the legal framework for trade,
competition and the internal market. Kosovo needs to step up its efforts in a
number of phytosanitary and veterinary areas that affect food safety, as
defined in the feasibility study. In the energy sector, efforts to
decommission the Kosovo A power plant need to be enhanced. The focus on the
priorities of the feasibility study, on preparing the negotiations of the
agreement with the EU and on the visa liberalisation dialogue has had an impact
on progress in other sectors.

Turkey

Turkey is a candidate
country and a strategic partner for the European Union. Turkey, with its large,
dynamic economy, is an important trading partner for the EU and a valuable
component of EU competitiveness through the Customs Union. Turkey has a
strategic location, including on energy security, and plays an important
regional role. The Commission underlines the importance of ongoing cooperation
and dialogue on foreign policy issues. Equally, the EU remains an
important anchor for Turkey’s economic and political reforms. The events
surrounding Gezi Park have highlighted the importance of promoting dialogue
across the political spectrum and society more broadly and the need for respect
of fundamental rights in practice.

The Positive Agenda,
launched in 2012, continues to support and complement accession negotiations
with Turkey through enhanced cooperation in a number of areas of joint interest.
While it has delivered some positive results, it is not a substitute for
negotiations. The full potential of the EU-Turkey relationship is best
fulfilled within the framework of an active and credible accession process.
This process remains the most suitable framework for promoting EU-related
reforms, developing dialogue on foreign and security policy issues,
strengthening economic competitiveness and increasing cooperation in the field
of energy and justice and home affairs. Accession negotiations need to regain
momentum, respecting the EU’s commitments and the established conditionality.
In this regard, the opening of chapter 22-Regional policy, after more than
three years of stalemate in the negotiations, represents an important step.
Turkey can accelerate the pace of negotiations by the fulfilment of benchmarks,
meeting the requirements of the Negotiating Framework and by respecting its
contractual obligations towards the EU, including the full and
non-discriminatory implementation of the Additional Protocol to the Association
Agreement towards all Member States.

A mixed picture emerges
from developments over the past twelve months in Turkey under the political
criteria. Important reform efforts have continued. The fourth judicial
reform package adopted in April strengthens the protection of fundamental
rights, including freedom of expression and the fight against impunity for
cases of torture and ill-treatment. The government has started a peace process
aiming to end terrorism and violence in the Southeast of the country and to
pave the way for a solution of the Kurdish issue. This process should be
pursued in good faith on all sides. Announced measures in the democratisation
package presented in September 2013 foresee further reforms on a range of
important issues, including the use of languages other than Turkish, rights of
persons belonging to minorities and changes to the current high thresholds for
representation in parliament and financing of political parties, which should
increase pluralism. Progress in cooperation with opposition parties and
implementation in line with European standards is key.

The cross-party
conciliation committee of the parliament, which was set up to draft a new
constitution, has pursued its work and has achieved agreement on a number of
articles. This work should continue in a spirit of compromise. With the
adoption of a comprehensive law on foreigners and international protection, an
important step has been taken towards adequate protection of asylum seekers.
Efforts have also continued aimed at protecting women’s rights, notably through
implementation of the Law on the Protection of Family and Prevention of
Violence. The Ombudsman Institution has been established and is already
actively working to fulfil its role. The National Human Rights institution also
became operational.

In addition, there is
more public debate on topics previously considered as sensitive, including the
Kurdish issue, the role of the military, the Armenian issue or the rights of persons
regardless of their sexual orientation. Democratic debate is spreading, in
particular through the social media, and is also being expressed beyond
traditional party politics, including through demonstrations. In this respect,
the wave of protests in June is also the result of the broad democratic reform that
has taken place in the past decade and the emergence of a vibrant and diverse
civil society that needs to be respected and consulted more systematically at
every level of decision making, irrespective of who holds the majority in parliament.

However, further
progress is held back by various persisting factors. The political climate is
still marked by polarisation and lacks a spirit of compromise. The government
has tended to rely exclusively on its parliamentary majority to pass laws and
decisions, including on socially sensitive issues, without sufficient
consultation and dialogue with stakeholders. The resulting tensions and
frustration eventually peaked in May and June around a controversial urban
development project in Gezi Park in Istanbul and overflowed into major protests
in many other cities. Attempts to reach out to protestors were limited and
overshadowed by excessive use of force by the police, polarising language and
an overall absence of dialogue. As a result of the confrontations six people
lost their lives and more than 8 000 were injured. The inspections carried
out by the Ministry of Interior concluded that police used disproportionate
force against protesters in May and June.

The wave of protests in
June highlighted a number of issues that need to be urgently tackled. With
regard to the excessive use of force by the police, the administrative and
judicial investigations launched should be followed through in accordance with
the case law of the European Court of Human Rights and those responsible need
to be held to account. Legislation on the establishment of a law enforcement
monitoring commission as an independent oversight body for police offences
should be adopted and implemented in line with European standards. The Minister
of the Interior took a first positive step by issuing circulars to regulate the
conduct by police officers during demonstrations. However, the overall legal
framework and practice on the intervention of law enforcement officers should
be brought in line with European standards so as to guarantee under all
circumstances respect for human rights and, in particular, the right to freedom
of assembly.

Key provisions of the
Turkish legal framework and their interpretation by members of the judiciary
continue to hamper freedom of expression, including freedom of the media. The
ownership structure of the Turkish media, dominated by large industrial groups,
combined with at times intimidating statements by high-level officials and
warnings by the authorities, also makes self-censorship in the media
widespread, as shown when mainstream media failed to report on the June
protests. This environment has also led to dismissals and resignations of
journalists.

A restrictive
interpretation by the judiciary of legal provisions on provoking public hatred
has led to a number of convictions of public figures for critical remarks on
religion. The unclear definition in criminal legislation of membership of an
armed organisation continues to be the source of a large number of arrests and
prosecutions. An ECHR-compatible legal framework has yet to be established on
matters of faith and conscientious objection. Substantial efforts are needed to
effectively guarantee the rights of women, children, and lesbian, gay,
bisexual, transgender and intersex (LGBTI) individuals. Domestic violence,
occasional honour killings and the issue of early and forced marriages remain a
serious concern. Turkey needs to ensure full respect for all property rights,
including those of non-Muslim religious communities.

These shortcomings need
to be addressed and the fourth judicial reform package properly implemented in
line with European standards. The authorities need to enhance efforts to
protect other fundamental rights and freedoms so that all citizens can
exercise their rights without hindrance. The measures announced in the democratisation
package hold out the prospect of progress on a number of these issues.

These issues underline
the importance for the EU to enhance its engagement with Turkey on fundamental
rights. Progress in the accession negotiations and progress in the political
reforms in Turkey are two sides of the same coin. It is in the interest of both
Turkey and the EU that the opening benchmarks for chapters 23-Judiciary and
Fundamental Rights, and 24-Justice, Freedom and Security are agreed upon
and communicated to Turkey as soon as possible with a view to enabling the
opening of negotiations under these two chapters. This would significantly
contribute to ensuring that the EU and its standards remain the benchmark for
reforms in Turkey.

In view of the reforms
required, the overall decision making process, both nationally and locally,
should involve more structured and systematic consultation of civil society. It
is essential to reform the existing legal environment and make it more
conducive to the development of civil society organisations in general. As an
example, environmental impact assessments need to be carried out fully
respecting the EU acquis. Major infrastructure projects should no longer
be excluded. Consultation of relevant civil society actors in other policy
areas is also strongly be encouraged.

The signature of the EU-Turkey
readmission agreement and the simultaneous start of the visa dialogue are
the first steps towards visa liberalisation, which can give a new momentum to
EU-Turkey relations and bring concrete benefits for both. It is important that
these two processes move forward and that the ratification procedure of the
readmission agreement in Turkey is swiftly finalised in view of its full and
effective implementation.

On foreign policy, Turkey
has continued to play an important role in its wider neighbourhood, for example
expanding its activities as a non-traditional donor in the Horn of Africa,
supporting democratic transition in North Africa, and enhancing cooperation
with and between Afghanistan and Pakistan. It has played a particularly
important role on Syria, supporting the development of a more unified
opposition and providing vital humanitarian assistance to large numbers of
Syrians fleeing their country. It has also continued to provide practical
support to the E3+3 talks with Iran. The ratification of an intergovernmental
agreement on the Trans Anatolian Pipeline Project (TANAP) between Turkey and
Azerbaijan was an important contribution to the goal of promoting greater
European energy security through the southern energy corridor. The regular
political dialogue between the EU and Turkey continued to intensify,
covering both international issues of common interest such as the Middle East
and Central Asia, and global issues such as counter-terrorism and
non-proliferation. Turkey has continued its policy of engagement in the Western
Balkans, including through its active participation in the South East European Cooperation
Process and its contribution to EU-led military, police and rule of law
missions in Bosnia and Herzegovina and Kosovo.

Turkey continued to
express support for a resumption of talks aimed at achieving a fair, comprehensive
solution and viable settlement of the Cyprus issue under the good
offices of the United Nations. The willingness of Turkey and Greece to accept
contacts with the chief negotiators of the two communities is a positive step
that could potentially support the settlement process.

The EU has also
underlined the importance of progress in the normalisation of relations between
Turkey and all EU Member States, including the Republic of Cyprus. In this
regard, it has called on Turkey to stop blocking the accession of Member States
to international organisations and mechanisms. Furthermore, the EU has stressed
again all the sovereign rights of EU Member States, which include, inter alia,
entering into bilateral agreements, and to explore and exploit their natural
resources, in accordance with the EU acquis and international law,
including the UN Convention on the Law of the Sea.

In this context, in the
Council conclusions of 11 December 2012, the EU noted with deep regret that
Turkey, despite repeated calls, continues refusing to fulfil its obligation of
full, non-discriminatory implementation of the Additional Protocol to the
Association Agreement towards all Member States and has not removed all
restrictions on vessels and aircraft registered in Cyprus or whose last port of
call was in Cyprus. The EU has underlined that fulfilling this obligation could
provide a significant boost to the negotiation process. In the absence of
progress on this issue, the EU will maintain its measures from 2006, which will
have a continuous effect on the overall progress of the negotiations. The EU
will continue to closely follow and review progress made on all issues covered
by the declaration of the European Community and its Member States of 21
September 2005. Progress is now expected without any further delay.

In line with the
Negotiating Framework and previous European Council and Council conclusions,
Turkey needs to commit itself unequivocally to good neighbourly relations and
to the peaceful settlement of disputes in accordance with the United Nations Charter,
having recourse, if necessary, to the International Court of Justice. In this
context, the EU has expressed once again serious concern and urged Turkey to
avoid any kind of threat or action directed against a Member State, or source
of friction or actions, which could damage good neighbourly relations and the
peaceful settlement of disputes.

The EU has welcomed the
fact that the co-operation initiatives between Greece and Turkey to improve
bilateral relations are continuing. The latest, 55th round of
exploratory talks for the delimitation of continental-shelf took place in
September. Greece and Cyprus made formal complaints about violations of their
territorial waters and airspace by Turkey, including flights over Greek
islands.

As regards the economic
criteria, Turkey is a functioning market economy. It should be able to cope
with competitive pressure and market forces within the Union in the medium
term, provided that it accelerates the implementation of its comprehensive
structural reform programme.

Following strong growth
rates of around 9% in the preceding two years, Turkish GDP growth slowed down
to 2.2% in 2012. This was accompanied by a rebalancing of growth from domestic
demand to foreign trade, a temporary narrowing of the current account deficit,
and a decline of inflation. In the first half of 2013, GDP growth strengthened
again to 3.7%. At the same time, the current account deficit has widened again
and consumer prices have re-accelerated. Public debt as a share of GDP has
continued to recede and is now clearly below 40%. Since May, due to domestic
and global factors, financial markets have come under pressure which led to
immediate reactions by the central bank with a view to stabilising the exchange
rate and containing capital outflows.

Turkey’s recent economic
performance illustrates both the high potential and the continuing imbalances
of the economy. On the external side, the reliance on sustained capital inflows
to finance a large structural current account deficit makes Turkey vulnerable
to changes in global risk sentiment, resulting in large exchange rate
fluctuations and boom-bust cycles in economic activity. Addressing this
vulnerability calls for measures to increase national saving and fiscal policy
has an important role to play in this respect. The adoption of a fiscal rule
would enhance budget transparency, provide an important fiscal anchor and
enhance credibility. Relatively high inflation continues to be a major
challenge. A rebalancing of the macroeconomic policy mix would be helpful to
ease the burden on monetary policy. For the medium to longer term, it is
essential that the functioning of the markets for goods, services and labour is
improved through structural reforms to increase international competitiveness.

The ongoing survey on
the functioning of the EU-Turkey Customs Union provides an important
opportunity to reflect on and discuss the necessary modernisation of this key
instrument in EU-Turkey relations, with a view to re-energising trade
performance on both sides and economic integration.

Given Turkey’s further
development potential as an energy hub and the common energy challenges it
shares with the EU, it is important that the enhanced dialogue develops on all
issues of joint interest.

As regards the
ability to take on the obligations of membership, Turkey has continued to
align with the acquis. There has been good progress on free movement of
goods; financial services; energy; regional policy and coordination of
structural instruments; science and research; and education. There have been
significant developments on establishing the legal framework in the area of
migration and asylum. The legal framework against the financing of terrorism
has improved. The new legislation on electricity has brought this area to a great
extent in line with the acquis. The Commission has assessed progress
made in the framework of the working groups under the Positive Agenda and
informed Turkey and the Member States which benchmarks it considers to be met.
The Commission also acknowledged progress achieved on important requirements as
regards the judiciary and fundamental rights. Progress has been limited in some
chapters, including public procurement, competition policy, agriculture and
rural development, food safety, veterinary and phytosanitary policy, and
taxation.

Comprehensive efforts
should continue in the area of intellectual property law, agriculture and rural
development, food safety, veterinary and phytosanitary policy, social policy
and employment, environment and climate change as well as consumer protection.
Further significant progress is needed on judiciary and fundamental rights and
justice, freedom and security. Legislative alignment needs to be pursued
especially in public procurement, competition policy, and taxation. Turkey
needs to develop its institutional capacity, in particular under chapters on
company law, transport as well as regional policy and coordination of
structural instruments.

Iceland

Following the 27 April
2013 general elections, the government decided to put the EU accession
negotiations on hold and has
indicated that the negotiations will not be continued unless approved through a
referendum. Iceland’s EU negotiations committee has been dissolved. This
decision means that the accession process has come to a halt. The government
has stated that it will undertake an assessment of the status of the
negotiations to date as well as on the developments of the European Union,
which will be submitted to the Icelandic parliament for discussion in the
coming months.

The Icelandic
authorities ceased contributing to this report under the new government. The
Commission’s reporting in the framework of this Communication has been adapted
to reflect this fact, where the period covered is from September 2012 to the
entry into office of the new government in May 2013.

To date, 27 negotiation
chapters have been opened, of which 11 have been provisionally closed.
Substantial progress was made in this respect during the reporting period with
9 chapters opened and 1 provisionally closed. Iceland is an important partner
for the EU through its membership of the European Economic Area, its
participation in the Schengen Zone, as well as due to common interests in the
fields of renewable energy and climate change and in view of the strategic
importance of the EU’s Arctic policy.

As a well-established
and functioning democracy, Iceland continues to fully meet the political
criteria for EU membership.

As
regards the economic criteria, Iceland can be considered a functioning
market economy.

Capital movement
restrictions are a substantial impediment to investment and growth. Lifting
these controls while preserving exchange rate stability remains a key
challenge. An ad-hoc group on the removal of capital controls, including
experts from the European Central Bank, the Commission and the International
Monetary Fund was set-up in June 2012 at the request of the Icelandic
government, within the framework of accession, to assess prospects for lifting
these controls.

As regards the Instrument
for Pre-accession Assistance (IPA) for Iceland, given the purpose of
this instrument and the government’s decision on the accession negotiations,
the Commission has suspended preparatory work on IPA II. The Commission
will not sign any new contracts under IPA I. As concerns projects for
which contracts have already been signed, the Commission is undertaking a
project-by-project assessment together with the Icelandic authorities in order
for the Commission to determine which projects would be continued.

Iceland has
already reached a high level of alignment in a significant number of
policy areas covered by the acquis, mainly due to its membership of the
European Economic Area. Additional steps towards alignment were made in the
reporting period, including in the following policy areas: free movement of
goods, company law, public procurement, information society and media, and
transport policy.

*               This
designation is without prejudice to positions on status, and is in line with
UNSCR 1244/99 and the ICJ Opinion on the Kosovo declaration of independence.

[1]               JOIN(2013) 8 final

[2]               COM(2012) 602
final

[3]               COM(2013) 66 final